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StockBeat: "Count Draghila" Sends Euro Bank Stocks Flying

Published 09/13/2019, 05:16 AM
Updated 09/13/2019, 08:35 AM
© Reuters.

By Geoffrey Smith

Investing.com -- Bank stocks led a charge higher by Europe’s markets on Friday, in a broad risk-on move that was also supported by hopes for some trade détente between the U.S. and China.

The ECB’s measures led to risk-free yields across the euro zone trending higher, something that helps the profits that banks make by accepting short-term money from depositors and the central bank and lending longer-term money to homeowners and businesses.

At the same time, although the package was less than many had expected, it avoided the impression that the ECB was completely powerless in the face of a trade war between China and the U.S. over which Europe has no control.

By 5:15 AM ET (0915 GMT), Spanish banks were at the top of the rankings, with Caixabank (MC:CABK) rising 5.0% and Banco de Sabadell (MC:SABE) rising 4.3%. Santander (MC:SAN), the country’s largest bank which gets most of its profits from the Americas, was up 2.3%. The laggards were those banks who have some of the highest excess reserves, notably the Netherlands’ ING Groep (AS:INGA) and ABN AMRO (AS:ABNd) – both of whom have relatively strong balance sheets, by European standards.

Austrian banks Raiffeisen Bank International (VIE:RBIV) and Erste Bank (VIE:ERST) also underperformed after the country’s new central bank governor made clear he had dissented from Thursday’s actions.

The biggest beneficiaries on Thursday had been Italy’s banks, as the resumption of quantitative easing promises to lock in profits for them on their disproportionately large holdings of sovereign bonds. The recent installation of a new Italian government that is not threatening to break the EU’s budget rules had, of course, removed a key obstacle to the ECB resuming QE in the first place, neutering one of the (German-led) objections to fresh bond-buying.

Even so, it’s hard to argue that the ECB package on its own is going to be a game-changer for a sector whose returns remain crimped by high legacy costs, high capital requirements and structural challenges such as the rise of online financial platforms.

Nor has the bank’s latest interest rate cut made the political backdrop for more aggressive actions to turn the euro zone economy around any easier: German newspapers raged Friday at “Count Draghila, who sucks our bank accounts dry.”

The Stoxx 600 was up less than 0.1% at 390.54, on track for a fourth straight weekly gain; Spain’s IBEX 35 was up 0.4% and Italy’s FTSE MIB up 0.3%, while the FTSE 100 fell 0.3% as sterling surged again on confidence that a disorderly Brexit will be avoided. U.K. bank stocks, with their domestic focus, were among the biggest outperformers.

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