Tumult in the banking world: ‘We are not in 2008, really’

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Tumult in the banking world: ‘We are not in 2008, really’

Despite the banks falling like dominoes or in serious trouble, some bankers expect golden months. The acquisition of Credit Suisse by UBS could mean a ‘reset’ in the value of bank shares, bankers say to the Bloomberg news agency. “You have to be very careful about throwing in the towel now,” Bloomberg quotes a banker as saying.

Due to the takeover in the Swiss banking sector, a large tumor has been removed from the banking world in one fell swoop, the bankers describe. A major, long-standing, problem has therefore been solved. This allows the focus to return to the factors that brought banks to their peak in recent months: the low stock prices and their undervalue relative to bond yields.

Higher rates

Alexandre Hezez, investment boss at the French asset manager Group Richelieu, therefore expects higher share prices for banks. “If we look at the next six to twelve months, banks will be much higher than where they are now. You cannot say that the sector is overvalued. The results expectations are good this year, we don’t expect that to change.’

‘We are not in 2008, really’

The fact that bank prices will not immediately collapse completely was already visible on Monday when investors bought up the dip after the deal between UBS, Credit Suisse and the Swiss government. Strategists applauded the deal and HSBC wealth strategist Max Kettner immediately said he had “much more confidence”. Although he admitted that banks’ shares “contain a lot of bad news” after the 16 percent drop in March.

However, a banker from Allianz Global Investors also sees positive sides. ‘European banks are solid and resilient, in terms of solvency and liquidity. We’re not in 2008, really.’

Nightmare for European banks

Yet European banks have been in a nightmare over the past few weeks, with the good months only starting in October after years of zero and lower interest rates. Due to the sell-off of shares this month, bank shares are now back at the low levels of early October. Bloomberg also sees that the price-to-earnings ratio is now about equal to the levels during the earlier crises of 2008 and 2011. Yet banks offer the highest dividend yield in Europe at 7.6 percent.

And the troubles are far from over, as regional banks in the United States must be protected from collapse by avoiding bank runs. In addition, there are still concerns about higher interest rates and stricter financial conditions, which means that a recession is increasingly lurking.

Lots of red on the New York Stock Exchange. (ANP/EPA)

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