Are Foreign Bank Stocks Worth A Look Now?

Most global bank stocks are in the negative territory so far this year. Especially European financials have been hit hard in recent months due to the resurgence of sovereign credit crisis. However some foreign bank stocks may be getting cheaper now and are worth a look at current levels.

From a Bloomberg article titled Europe Banks Valued at Post-Lehman Lows Show Sovereign Risks Intensifying published yesterday:

Investors are valuing European banks at levels not seen since the depths of the credit crunch that followed the collapse of Lehman Brothers Holdings Inc. as concern over a Greek default and debt contagion escalates.

A Bloomberg index shows 46 lenders trading at 0.56 times book value, the cheapest since the post-Lehman lows of March 2009, signaling investors estimate their net assets are worth less than the companies claim and are demanding discounts for perceived risks. Valuations reflect the impact of a potential sovereign default for some banks, according to Barclays Capital analysts led by Jeremy Sigee.

Based on the market’s reactions, it appears that investors are assuming the worst case scenario for European banks. This is especially true with lenders with heavy exposure to the PIIGS countries. The article added:

The Bloomberg Europe Banks and Financial Services Index of stocks dropped 4.1 percent today to the lowest level in almost 2 1/2 years. The index has slumped 37 percent so far this year, led by financial companies based in peripheral Europe, such as Banco Comercial Portugues SA and National Bank of Greece SA, as well as those with investments there, such as Commerzbank AG of Germany and France’s Societe Generale (GLE) SA.

The table below lists the YTD returns all the exchange-traded foreign bank ADRs:


Source: BNY Mellon

Except Bancolombia(CIB) all the banks noted above are in the red YTD with a few down over 50%. While European financials are hurt by the credit crisis, emerging market financials are off for other reasons such as rising interest rates, inflation, lack of loan growth, etc.

In order to evaluate the performance of foreign bank stocks from another perspective, I calculated their returns from the highs reached after the March, 2009 lows as shown in the table below:


Source: Yahoo Finance

While it seemed that most banks recovered strongly from the abyss of the Global Financial Crisis (GFC), the returns above show that the erosion in share prices since then have been terrible.

Note: Data shown above is known to be accurate from the sources used. Please do your own research before making any investment decisions.

Disclosure: Long BCH, BBD, ITUB, STD, BBVA, RBS, LYG, BMA

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