The performance of the Euromoney index for the continent’s banks as a whole was relatively strong in comparison with some of its constituents. It fell just 12% compared with the 30% slide of the German banks and the 45% fall of southern European banks, which diverged from the index in the spring as problems in Italy came to a head.
Scandinavian banks were among those boosting the index; they gained 5% in the year to early December. Norway’s DNB was one of the best performing banks anywhere in Europe, beating all the other Scandinavian banks with an 18% increase in its share price.
Some countries’ bank valuations were surprising. UK banks, for, example, were almost as resilient as their Scandinavian counterparts, rising 3% in aggregate, while Turkish lenders, such as Akbank, also made strong gains. That shows that although European political events like Brexit and the attempted coup in Turkey were earthquakes in the media, markets tend to focus on the less emotive matters of capital and profitability.
Irish banks were among the year’s worst performers. Their shares hugged the European index before the Brexit vote and fell dramatically after it – ultimately underperforming even German banks. UK growth strategies at Bank of Ireland and Allied Irish Banks began to look less sensible as the UK economy looked shakier and a weaker sterling hit euro-denominated earnings.
UK banks fared well or badly, according to the extent of their international business. Lloyds and Virgin Money lost just under 20% of their value, while RBS lost almost a third. At the other extreme, Standard Chartered rose 16.5%, in strong contrast to its 40% fall in 2015. HSBC beat even the Scandinavians, rising 22%. Like the Irish banks, but in the other direction, HSBC’s shares rapidly diverged from the index after the Brexit referendum. Shares in Barclays, which still has a high proportion of non-UK earnings, rose 4%.
In the UK, at least, 2016 might have been the year when the fashion for national champions changed. Investors may be changing their attitude to the benefits and risks of international diversification in banking.
Like the British, Swiss banks also show a wild divergence in their performances. Relatively good returns in private banking, despite the regulatory challenges, have given most Swiss banks relatively high valuations, but the national sector lost 20% of its value in 2016. Credit Suisse performed particularly badly, losing about a third of its value. UBS lost about 12%, more or less in line with the wider European index, although its valuation remains higher than most in Europe at 1.26 times 2016 consensus book value, according to Berenberg. Julius Baer lost 6%, despite enjoying a higher price-to-book valuation than UBS.
Despite Spain’s relatively strong economic performance and a return to greater political stability, the country’s banks were among the worst performers in 2016, losing more than 10% of their value. This suggests that the country’s financial problems are not over yet and that Spanish banks have yet to consolidate into the quasi-oligopoly that their Scandinavian and Dutch counterparts banks enjoy.
Santander and CaixaBank were the best-performers, with a slight gain and slight loss, respectively, during 2016. Ever-troubled Banco Popular lost two thirds of its value. Sabadell, which counts the UK as an important market after buying TSB, lost 17% – a similar amount to Bankia, which, heavily reliant on net interest income, was hit by the drop in Euribor rates.
Finally, French banks also held up well, rising slightly over the year. Société Générale and Crédit Agricole achieved small gains, while the biggest French bank, BNP Paribas, posted an impressive 11% rise. Yet it was the highest-valued French bank that fared worst. Natixis’ shares fell slightly over the year on investor worries about US asset management flows and a mid-year profit warning by its 49%-owned export credit insurance subsidiary, Coface.
| Year of change Select banks’ local currency stock performance vs Euromoney Indices’ bank index for Europe and southern Europe |
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