No Banking on (U.S.) Banks

by | Dec 11, 2023 | Risk Report | 0 comments

Higher interest rates are meant to be good for banks. It should increase their net interest income, their profits, and their stock price.

Instead, this year, the large US bank stocks have fallen 15% whereas the rest of the stock market is up 19%. The Economist calls it “underperformance following a decade of mediocrity.” Ouch.

While there are many explanations—fear of deposit flight and loan losses, increased funding costs, more expensive regulation, fierce competition from money market funds and private-credit firms—these are hardly excuses.

If it is any consolation, (it is probably not), 73% of European banks are trading under book value, according to FT, which refers to these as zombie banks.

Though under or low valuation can signal there is a bargain to be had, that requires a promise of rosier times to come which looks less than likely given that all rumors and bets are on lower interest rates in the new year.

However, should you have some funds to spread around, both the Economist and FT root for the undead Europeans, since they seem less spooked by bank-run anxiety or regulation fright.

Regitze Ladekarl, FRM, is FRG’s Director of Company Intelligence. She has 25-plus years of experience where finance meets technology.