Domestic banks better placed as mass sell-off continues, says RBC
By Benjamin Chiou
Date: Monday 07 Apr 2025
(Sharecast News) - RBC Capital Markets has said that domestic lenders are better positioned in the midst of the current global equity market sell-off, with share prices in the European banking sector having tanked over recent days.
European bank stocks have fallen by 14% since last Wednesday - the day when Donald Trump unleashed sweeping trade tariffs that have hammered investor sentiment and raised recessionary risks across the globe. Euro-area banks have dropped by 19% with lenders with heavy exposure to Asia and the US having performed the worst.
Across the sector, banks are now trading at a 22% discount to their price-to-earnings historic average, while the cost of equity stands around 100 basis points above historic averages at 12.3%, RBC said.
"Within a short period of time, the fortunes of European banks have changed as expectations on the economic outlook have drastically changed," the broker said in a research note on Monday. "Knock on effects of tariffs are potential meaningful earnings headwinds to banks. Things are evolving though and for now it appears that some of the domestically focused banks are better placed on a relative basis."
The direct impact of tariffs is limited for the sector so far, but banks are highly geared to the "secondary effect", RBC said.
"If implemented the impact will be felt differently across regions impacting banks depending on geographic exposure with Asia (HSBC, UBS, Baer), Germany (DBK, CBK), Mexico (BBVA), US (Barclays, UBS) in the spotlight but also Ireland and Switzerland given their level of exports to the US.
"Domestically orientated banks appear to be somewhat more isolated for now. Events will be evolving with possible retaliatory measures which could impact the services sector (e.g., financial services; see EBA report on third country players)."
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