The last couple of weeks has been a rollercoaster for the market, with a special focus on the banking sector, following the news that the American bank Silicon Valley Bank (SVB) collapsed. In this brief overview, we’ll look at how this influenced the European, and especially regional banks.
The news of the SVB’s collapse came as a shock to a lot of investors, but especially analysts. In fact, out of 23 analyst recommendations for SVB before the collapse, 12 issued “buy”, 5 issued “overweight”, 5 issued “hold”, and 1 issued “underweight” recommendations. No sell recommendations were issued in the period before the bank’s collapse. This just demonstrated the magnitude of the event, and just how unexpected it was. Because of this, the sentiment on the entire market was quite negative, with the overall banking sector hit especially hard.
Largest American banking stocks* performance (2020 – 2023 YTD, %)
Source: Bloomberg, InterCapital Research
*By total assets
If we looked at some of the largest banks in America, since March 1st (before the whole situation with SVB happened), all of them recorded double-digit decreases. In fact, looking at the graph above, we can see that U.S. Bancorp declined by 25.8%, PNC Financial Services by 20.8%, Bank of America, and Wells Fargo both by 16.9%, respectively. Citigroup also declined by 11.6%, and finally, J.P. Morgan declined by 10.5%. As is also visible from the graph, some of them have recorded even stronger decreases since 2020, demonstrating not only the influence of the current situation but the general macroeconomic pressures we have witnessed for over a year, year and a half now. In this context, Citigroup lost 43.9% of its value since 2020, U.S. Bancorp lost 40.2%, Wells Fargo 27.8%, PNC Financial Services 21.7%, Bank of America over 19%, with only J.P. Morgan declining by single digits, at 8% to be exact.
Largest European banking stocks performance (2020 – 2023 YTD, %)
Source: Bloomberg, InterCapital Research
Moving on to European banks, we would like to note that even though it is not one of the largest, we also included Credit Suisse here. The reason why they’re interesting to look at is the fact that the bank has been operating with losses for a long time period now, and the latest news that only came out yesterday postulated that one of the largest shareholders in the bank (Saudi National Bank with 9.88%) will not support the bank any longer through capital increases. As such, the bank was hit especially hard by all of these previous developments. In fact, just in yesterday’s trading, Credit Suisse shares lost over 24% of their value. However, the latest news that only came out today, is that Credit Suisse will exercise its option of borrowing up to CHF 50bn from the Swiss National Bank, as well as other actions, all of which are available in the press release here. Since March 1st, Credit Suisse lost over 40.5% of its value. Finally, given the long nature of the decline in the bank’s operations, it lost 86.3% of its value since 2020. Looking at the other European banks, since March 1st, BNP Paribas shares lost 21.4% of their value, Barclays lost 20.8%, Banco Santander lost 13.8%, HSBC lost 13.7%, and finally, Credit Agricole lost 11.6%.
Regional banks, select European banks* stock performance (2020 – 2023 YTD, %)
Source: Bloomberg, InterCapital Research
*Unicredit and Intesa Sanpaolo were selected as they have large majority ownership in the largest Croatian banks, ZABA (Unicredit) and PBZ (Intesa Sanpaolo)
Lastly, taking a look at the region, since March 1st, the largest Slovenian and regional bank, NLB, lost 5.7% of its value, followed by the largest Croatian bank, ZABA, which lost 1.7% of its value, and the largest Romanian bank, Banca Transilvania, which lost 0.9% of its value. On the other hand, HPB recorded a slight increase, of 0.9%. Several things have to be pointed out here. First of all, the increase in value (HPB) and retention of value (ZABA) can surely be attributed to their solid business results in 2022. But one also has to note various other factors. For HPB, their growth and current position as the 6th largest bank in Croatia, on the back of the M&A of Sberbank’s subsidiary in Croatia (renamed to Nova hrvatska banka) last year, which significantly boosted the Company’s net profit from the negative goodwill. Meanwhile, ZABA recently announced a really high dividend, with a DY before the announcement of 16.3%, more of which you can read here. As the ex-date is approaching (12 April 2023), it would seem quite foolish to sell the stock now. This is why it is relevant to look at the majority owners of ZABA, Unicredit in this case, and their stock performance, as this is more indicative of what one would expect in the current situation. Since March 1st, Unicredit’s share price declined by 17%. A similar situation is present with Intesa Sanpaolo, the owner of the 2nd largest Croatian bank, PBZ. Since March 1st, Intesa Sanpaolo has recorded a decline of 12.4%.
All in all, the recent news has had a quite strong effect on the majority of stocks in the US and Europe. As the crisis continues to unfold, shares of companies involved in the banking sector will continue to be volatile. The nature of the banking business has a widespread effect on the whole economy as it influences the citizens directly through deposits. Even though they are secured to a certain extent through governmental mechanisms of protection, the expectations of further developments will play a key role here.
