European bank stocks surge to highest level since 2008 global financial crisis. What's behind the bull run?
The STOXX 600 Europe Banks index has been in an uptrend during five of the last six trading sessions, buoyed by improved profits and resilience amid the tariffs imposed by US President Donald Trump. Shares of HSBC, Barclays and Santander hit their 2008 highs while Italy's UniCredit rose to its highest level since 2011, according to a Financial Times report.
The gains were bolstered by a latest report from the European Banking Authority (EBA) on Friday as it presented the outcome of its latest health check of the sector. The STOXX 600 Europe Banks index rallied nearly 2% at the open today, August 4.
Banks across the European Union are well-positioned to withstand a major economic shock stemming from geopolitical and trade tensions, according to a report by Reuters, citing the EBA.
The EBA conducted stress tests on 64 European banks, including 51 based in the eurozone, simulating the impact of a prolonged recession across the EU and other advanced economies. The results showed that none of the banks would fall below their core capital requirements, and only one institution would breach its leverage ratio requirement.
However, under the adverse scenario, in case escalating geopolitical tensions and rising protectionist trade policies push up energy and commodity prices, disrupt supply chains, and dampen both consumption and investment - it would lead to a combined losses of €547 billion for the banks included in the stress test — higher than the €496 billion projected in the 2023 exercise.
The latest earnings from European banks show that the sector remains largely insulated from the tariff shocks.
Case in point is Barclays Plc. Its traders turned in their best second-quarter performance in three years as the volatility wrought by Trump's trade war helped them deliver revenue that topped analyst expectations.
According to a Bloomberg report, the fixed-income business brought in £1.45 billion ($1.9 billion), a rise of 26% compared with a year ago, while the equities desk made £870 million, an increase of 25% year-on-year. Measured in dollars, the increase in revenue from the entire global markets business was up 35%.
Barclays, one of Europe's biggest investment banks with a large Wall Street presence, generates the biggest portion of its revenue from dealmaking and trading.
Meanwhile, another European lender - Germany's Deutsche Bank - reported better-than-expected trading results, driving its stock to the highest level in a decade. The stock has gained over 70% this year.
French lender BNP Paribas also posted better-than-expected earnings as it got a boost from its fixed-income traders while equities slumped in the volatility triggered by the US tariff announcements. The stock has crossed its September lows and jumped 31% this year, in line with the index for European banks.
(With inputs from agencies)
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
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