Bank Risk in Europe Hits Turning Point, PineBridge Manager SaysBy
Long coveted for their safety, Nordic banks have grown costly
PineBridge now sees better value in southern European banks
Nordic banks, long considered among the safest in the world, are losing their appeal as an investment target as lenders further south start to look more attractive, according to PineBridge Investments, a multi-asset manager that oversees about $85 billion.
Graeme Bencke, the portfolio manager who heads equity strategy at PineBridge in London, says the circumstances that made banks in Sweden, Denmark, Norway and Finland a “good investment in the post-crisis period” no longer exist.
“Now, we’re in more of an upswing and a lot of the European banks that had been in trouble, southern European in particular, are now starting to see an incremental improvement,” Bencke said in an interview in Stockholm. “So there’s a much bigger inflection point in valuation in those banks than there is in the Nordics. That’s kind of keeping us away from the Nordic banks.”
Investors have so far stayed loyal to banks in the Nordic region, where prosperous and stable economies have been relatively unscathed by the wave of financial shocks to have hit since 2008. Nordic lenders have also tended to take a more cautious approach on capital adequacy. But that investor loyalty has driven up valuations, potentially leaving less room for price gains.
Sweden’s four biggest banks are all in the top half of Bloomberg’s index of European financial stocks, based on price-earnings ratios for next year. Nordea Bank AB, the biggest Nordic lender, has seen its share price soar about 50 percent over the past 12 months, compared with a roughly 35 percent increase in the Bloomberg index.
Meanwhile, banks further south are starting to emerge from years of trouble. In Spain, Banco Santander SA’s recent takeover of Banco Popular Espanol SA (a key test of European resolution rules) shows southern Europe’s banks are successfully dealing with their weakest links. (Though Italy is still trying to figure out how to handle its struggling banks.)
“Southern European banks in particular have a lot of problem assets which had been aggressively marked on the books,” Bencke said. “These banks are now able to offload some of those problem assets at losses that are smaller than the losses they’ve already taken. So we’re starting to see again, assuming the recovery continues, it’s quite a good inflection point for those banks with more difficult assets. Which is something the market’s been waiting for for years.”