Is this the end of a long and painful cycle for European banks, which have been chronically under-performing for the past fifteen years - since the great financial crisis of 2008 - to such an extent that they remain prisoners of struggling economies, excessively low interest rates and excessively high requirements on the part of the regulator?
Or is it the start of a new era, now that their capitalization ratios are deemed satisfactory by the regulator, interest rates are rising significantly and the Old Continent's economies have fallen so far that they can only bounce back? The question remains open and difficult to answer, especially as nowhere on the Old Continent are there any signs of recovery.
On the stock markets, bank share prices have climbed back to their ten-year highs, with spectacular gains in the case of German and Italian banks whose situations were considered hopeless just a few years ago.
The rebound in valuations, however, presents a more mixed picture. Unicredit is currently valued at x1.1 tangible equity, compared with a ten-year average of x0.5, while Commerzbank is valued at x0.9 tangible equity, compared with a ten-year average of x0.4.
For example, HSBC and Banco Santander, partly shielded from the turmoil in Europe thanks to their strong presence in Asia for the former, and in North and South America for the latter, are currently valued at x1.1 tangible equity compared with a ten-year average of x0.9; rather than a rebound, they are therefore characterized by relative stability.
BNP Paribas is valued at x0.6 tangible equity, a notch below its ten-year average, while Crédit Agricole is right on its average, at x0.8 tangible equity. Barclays, for its part, shows only a very modest improvement, at x0.7 tangible equity compared with a ten-year average of x0.5.
With the exception of Citigroup, the gap with the major US banks is striking. Bank of America is valued at x1.7 tangible equity; JPMorgan and Wells Fargo at x2.7 and x1.8 tangible equity; US Bancorp, meanwhile, has not departed from the x2 tangible equity multiple that has defined its valuation for the past ten years.
See Citigroup Inc: Fraser's delicate equation, JPMorgan Chase & Co: Mixed year, record valuation. The upturn is comparable in the investment banking segment, as we recently reported in The Goldman Sachs Group, Inc: Wall Street Barometer.
Optimistic investors betting on the Old Continent's banking institutions catching up are pointing the finger at profitability dynamics. It's true that profitability in Europe is tending to improve markedly, gradually returning to double-digit territory, while it is stagnating, or even eroding slightly, in the United States.
In aggregate, UBS expects European banks to return ?123 billion to their shareholders in fiscal 2024. 40% of this amount will be distributed by, in order, HSBC, BNP, Intesa Sanpaolo, Unicredit and ING Groep.
At the bottom of the ranking, the big absentees from the podium are Crédit Agricole and Deutsche Bank; both together are expected to return less capital to their shareholders than Spain's BBVA.