Graphic: European banks' bumpy recovery a year after Credit Suisse collapse

Deutsche Pfandbriefbank AG

13/03/2024 06:00

By Tommy Wilkes and Tom Sims
       LONDON/FRANKFURT, March 13 (Reuters) - A year ago Credit
Suisse was teetering on the brink of collapse, a scare that sent
European bank shares tumbling and the cost of insuring against
default soaring. 
    Investors were sounding the alarm about the stability of
lenders amid turmoil among regional U.S. banks.
    UBS's  UBSG.S  state-orchestrated rescue of the stricken
Swiss peer restored calm. European banks have since staged a
striking - if somewhat fragile - recovery, posting record
profits and enjoying double-digit gains in their shares. 
    Below are graphics charting the road to recovery, as well as
some potential pitfalls ahead.
    
    STOCKS SOAR
    European bank stocks dropped sharply in March last year -
Deutsche Bank shares were down more than a fifth for the month
and the European banking index had its worst month since the
pandemic.
    Share prices have since rocketed, led by a 60% gain for UBS
and nearly 70% for UniCredit  CRDI.MI . BNP Paribas  BNPP.PA 
and Deutsche Bank shares have underperformed but still gained. 
    The STOXX Europe 600 banks index  .SX7P  has climbed for
five straight months and is now at its highest since 2019.
    
    INCOME BOOST
    Fuelling the recovery has been the rebound in bank
profitability, aided principally by higher interest rates that
have swelled banks' net interest income - the difference in the
money banks pay on deposits and earn on loans.
    Banks including Santander  SAN.MC , UniCredit and British
banks like NatWest  NWG.L  have all reported a jump in profits
on the back of higher net interest income. Many have doled out
huge dividends and buybacks.
    Still, as interest rates peak, analysts expect income
earnings to plateau and then drop.
    
    
    AT1 RECOVERY
    Additional Tier 1 bonds became the talk of the town when 16
billion Swiss francs ($18 billion) worth of Credit Suisse bonds
were written down to zero as part of the UBS rescue.
    Other bank AT1 bonds plunged in price, some below 80 and
even 60 cents on the euro in late March. The big banks' AT1s
have since recovered sharply.
    Concerns about commercial property exposure has sent the
prices of some specialty German banks' bonds plummeting again
this year, however, with Deutsche Pfandbriefbank  PBBG.DE  and
Aareal AT1 bonds hardest hit.
    
    PROPERTY WEAKNESS
    Commercial property is a potential weak spot for banks, with
prices slowing sharply as vacancy rates soar and higher
borrowing costs put pressure on indebted developers.
    Collectively, European banks have 1.4 trillion euros ($1.5
trillion) in exposure. S&P Global estimates overall European
bank assets, excluding the United Kingdom, totalled nearly 28
trillion euros last year.
    
    European banks have reduced their exposure to commercial
property and can withstand further weakness in prices, Morgan
Stanley analysts said this month, although some individual
lenders are more exposed.
    
    
    M&A IS MISSING
    UBS' acquisition of Credit Suisse was the biggest banking
merger since the 2008 financial crisis, when a series of lenders
in Europe and the United States were forced into emergency
mergers.
    Outside of crises, big European bank M&A has been virtually
non-existent, especially cross-border deals.
    Impediments to tie-ups have left European lenders in a more
fragile state than their now-dominant American peers, executives
and investors say.
    
     
($1 = 0.8783 Swiss francs)
($1 = 0.9160 euros)
    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Big bank M&A increasingly rare    https://reut.rs/3Vd9qf0
Interest income    https://reut.rs/3Tu3MUb
Testing confidence    https://reut.rs/4a4FBBq
Commercial property exposure    https://reut.rs/3TsP1RK
Bank shares    https://reut.rs/4a4yV62
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Tommy Reggiori Wilkes and Tom Sims; Editing by
Emelia Sithole-Matarise)
 ((thomas.wilkes@tr.com; +44 (0) 7769 955711;))