Most investors are currently avoiding European banks due to the myriads of issues facing the whole banking industry. It is almost impossible to evaluate a bank’s balance sheet since there are many known unknowns. Austria’s Erste Bank (EBKDY) is a classic example of this scenario. Just when investors, including myself, thought that the worst was over, the bank announced last month that it would lose up to 800 million Euros ($1.0 Billion) this year after taking hits on foreign-currency loans in Hungary and Euro zone sovereign debt. Erste also suspended the dividend payment for this year. As a result the already beaten down stock fell more after this confession.
In spite of all the negativity towards the European banking sector, some managers are staying bullish. In a recent interview Paul Read, Co-Head of Fixed Interest at Invesco Perpetual, UK stated the following factors supporting his views:
- Banks have raised a huge amount of capital since the credit crisis of 2008.
- Big banks have engaged in lots of deleveraging with the average European bank come down from 30 times leverage to 20 times leverage.
- Quality of capital has improved.
- Reliance of wholesale funding has decreased compared to earlier years.
- Loan to deposit ratios have improved.
Paul said that he was bullish from an income point of view on the big northern European banks, the big US banks and the big UK banks.
Source: Risk & Reward, Research and investment strategies, 4th quarter 2011, Invesco UK
Investors willing to take some risk and planning to hold for at least five years can consider the following European bank stocks:
1.Company: Barclays PLC (BCS)
Current Dividend Yield: 3.22%
Country: UK
2.Company: HSBC Holdings PLC (HBC)
Current Dividend Yield: 4.51%
Country: UK
3.Company: Swedbank AB (SWDBY)
Current Dividend Yield: 2.48%
Country: Sweden
4.Company: Banco Santander SA (SAN)
Current Dividend Yield: 11.49%
Country: Spain
5.Company: Erste Group Bank AG (EBKDY)
Current Dividend Yield: 5.11%
Country: Austria
6.Company:Nordea Bank AB (NRBAY)
Current Dividend Yield: 5.01%
Country: Sweden
7.Company: Dnb Nor ASA (DNHBY)
Current Dividend Yield: 6.34%
Country: Norway
8.Company: Deutsche Bank AG (DB)
Current Dividend Yield: 2.82%
Country: Germany
9.Company: Credit Suisse Group AG (CS)
Current Dividend Yield: 6.32%
Country: Switzerland
10.Company: Banco Bilbao Vizcaya Argentaria S.A (BBVA)
Current Dividend Yield: 7.95%
Country:Spain
Note: Dividends yields noted are as of market close Nov 15, 2011
Disclosure: Long STD, BBVA, EBKDY, SWDBY
