Europe Banks Falter as ECB Defers Asset Buying

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European bank valuations show investors’ are skeptical about the industry.

Lenders in the Stoxx Europe 600 Index are trading near their lowest valuation in a year versus banks in developed economies worldwide, as the CHART OF THE DAY highlights. After reaching a seven-month high in January, the European group’s price-to-earnings ratio lost 5 percent to 47.55, compared with a 2 percent increase for lenders in the MSCI World Index.

While the European Central Bank introduced a negative deposit rate and announced targeted loans to stimulate lending last month, it held off on a securities-purchasing program. For European banks to rally, investors need to see the ECB buying assets, which it probably won’t do until after giving current policies more time, said Ian Richards of Exane BNP Paribas.

“It’s too early to be buying aggressively on the prospect of a euro-zone recovery,” Richards, the head of equity strategy in London, said by phone. “The prospect of supporting material credit growth and better earnings revisions in the banking sector is further down the line than the market had hoped.”

U.S. regulatory probes and penalties that have slammed some European lenders are adding to concerns. Barclays Plc tumbled 14 percent in June, the most since May 2012, as New York’s attorney general said the bank lied to customers and masked how much high-frequency traders were buying and selling in its LX dark pool. BNP Paribas SA and Credit Suisse Group AG posted their worst quarterly performances in two years after being fined for U.S. sanctions violations and to help Americans evade taxes, respectively.

“These one-offs in conduct issues keep on coming back and haunting the sector,” Richards said.

To contact the reporter on this story: Inyoung Hwang in London at ihwang7@bloomberg.net

To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net Sheldon Reback

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