Call it a Brexit relief rally, of sorts. After an opinion poll showed the Remain campaign in the lead once again, stock markets across Europe rebounded on Monday.
Banks were among the big beneficiaries -- including those outside Britain. That's because a vote in favor of Brexit would also threaten European banks that are still only part-way through cleaning up their balance sheets.
Asset managers like NN Investment Partners and Natixis have warned of political contagion and credit-market jitters which would threaten those lenders with large sovereign-bond holdings like those in Italy or Spain. Deal making would likely remain muted and trading revenue would be hit, bankers say.
A vote in favor of remain would leave euro-zone lenders with a more stable environment in which to raise capital and sell assets.
And they need it. Take Italy, where an industry battered by bad loans needs a capital infusion and asset sales. The country's banks trade at a steeper discount to most European peers, let alone their British ones. Brexit would likely make it harder and costlier to solve those problems and close that valuation gap.
Even UniCredit, Italy's only globally systemic bank and one that has been called upon to help its weaker domestic rivals, is expected by analysts to raise an estimated 5 billion euros ($5.7 billion) to bolster capital -- that is as soon as it has picked a new CEO. Imagine doing that in the market turmoil created by a Brexit vote and you can see what's at stake for banking systems outside the U.K.
Sure, British banks aren't insulated from Brexit risks and a consumer bank like Lloyds may not be immune to the long-term hit to economic growth or house prices that leaving the EU may bring.
But ultimately Lloyds has a stronger capital base, a more profitable retail operation and less vulnerability to currency swings than a global investment bank like Deutsche Bank -- and certainly less need to strengthen its balance sheet than many euro zone banks.
So on Friday, if the U.K. votes to stay in the EU, don't be surprised to see a stronger rebound in banks outside the U.K. than in. But don't take that to be a vote of confidence in the health of euro-zone banks.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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