‘Lottery’ Makes European Peripheral Banks Winners as UBS Falls

Bank stocks posted some of Europe’s biggest gains Tuesday, as well as its biggest losses.

Greek, Spanish, Portuguese and Italian lenders rallied, with Eurobank Ergasias SA and Piraeus Bank SA up more than 13 percent. At the other end, regulatory probes and disappointing earnings pushed the largest institutions lower. UBS Group AG fell 4.5 percent and HSBC Holdings Plc lost 1.2 percent.

Shares diverged as companies in Europe’s periphery spent another day reacting to Greece developments, while concern about regulatory scrutiny and earnings growth drove reactions in Switzerland and the U.K. UBS warned that negative interest rates may hurt profitability and HSBC dropped another day after a report said it helped clients avoid taxes.

“For Greek and Portuguese banks, that’s more of a lottery from what kind of news we had overnight,” said Ian Richards, head of equity strategy at Exane BNP Paribas in London. “In terms of the conduct and litigation angle, the big universal banks are clearly in the firing line.”

Broader benchmark indexes rose in Europe, led by Greece, Italy and Spain, after Greece offered compromises before emergency meetings with its official creditors on Wednesday.

Eurobank Ergasias and Piraeus Bank climbed after slumping more than 26 percent in the past three days. Greek banks have been swinging from bull to bear markets, with the FTSE/Athex Banks Index posting average one-day moves of almost 7 percent this year, compared with 2.6 percent in 2014.

Portugal, Italy

Banco Comercial Portugues SA rose 3.5 percent. Spain’s Banco Bilbao Vizcaya Argentaria SA climbed 2.2 percent. Italy’s Mediobanca SpA gained 4.4 percent after reporting quarterly profit that fell less than estimated.

Exane’s Richards said peripheral lenders are the ones that stand to rally after the European Central Bank announced an unprecedented bond-buying program. He recommends Italian lenders amid an improving economy.

“It will be the peripheral banks that are more geared to a changing macroeconomic environment,” Richards said. “If the euro zone is picking itself off its knees and if QE is successful in turning the inflation dynamic around, where is the big sensitivity?”

BNP Paribas SA fell 3.7 percent on Feb. 5 after saying new rules and higher taxes will drag on earnings next year. UBS slid on Tuesday after posting lower-than-expected earnings at its wealth management division. The stock also dropped on Monday as people with knowledge of the situation said the U.S. Justice Department was looking into whether it misled clients in the marketing and selling of some foreign-exchange structured products.

Lenders from the Stoxx Europe 600 Index have risen 2.2 percent this year, trailing the 9.1 percent increase for the broader gauge.

“It’s not a new development, but it’s still a harsh reality when you wake up and see the headlines,” Richards said about the regulatory scrutiny that larger banks are going through.

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