plessas @plessas: "🎩 PIIGS Banks are Back..."

Greece

🎩 PIIGS Banks are Back 🎩 During the past year we have been positively surprised by the resurgence of peripheral European banks from Portugal, Ireland, Italy, Greece, and Spain, previously derogatorily termed PIIGS due to their economic struggles. These banks, which were once seen as risky investments, are now outperforming their core European counterparts. Key factors driving this performance include low valuations, better economic growth, and a higher sensitivity to interest rates. Since 2022 total returns for bank sector indices in these five countries have exceeded 100% compared to 60% for all EU banks. This marks a significant shift from the past when low single-digit returns on equity were the norm. Peripheral banks tend to perform better when interest rates rise, benefiting from a higher proportion of variable rate loans. In 2022 and 2023 average returns on tangible equity were 13% in Italy and Spain, compared to 9% in France and Germany. Additionally, these banks have been slower to pass on rate increases to savers, bolstering their margins. Despite these improvements, peripheral banks are still undervalued, with forward earnings multiples between six and seven times, close to crisis-era levels. This undervaluation persists even though returns on tangible equity are expected to remain high until at least the end of 2026 As interest rates start to fall, German and French banks are anticipated to see rising returns, benefiting from higher fixed-rate loans already on their books and falling deposit rates. However, peripheral banks might still maintain their momentum due to cleaner loan books and stricter lending standards. Source: FT and Personal Views $SAN.MC (Banco Santander SA) $CABK.MC (Caixabank) $UCG.MI (UniCredit Commercial Bank) $ISP.MI (Intesa Sanpaolo Group) $BCP.LSB (Banco Comercial Portugues SA) $DBK.DE (Deutsche Bank Aktiengesellschaft) $ACA.PA (Credit Agricole S.A.) $GLE.PA (Societe Generale Group) $UBSG.ZU (UBS Group AG) $NDA_SE.ST $HSBA.L (HSBC Holdings) $BARC.L (Barclays) $LLOY.L (Lloyd's Banking Group PLC) $NWG.L (Natwest Group PLC) $BAC (Bank of America Corp) $JPM (JPMorgan Chase & Co) $C (Citigroup)