Nordic lenders less attractive
• Recovering lenders in south Europe back on the radar
Nordic banks, long considered among the safest in the world, are losing their appeal as an investment target, according to PineBridge Investments.
Nordic banks, long considered among the safest in the world, are losing their appeal as an investment target, according to multi-asset manager Pine Bridge Investments.
Graeme Bencke, the portfolio manager who heads equity strategy at PineBridge in London, said the circumstances that made banks in Sweden, Denmark, Norway and Finland a “good investment in the postcrisis period” no longer existed.
“Now, we’re in more of an upswing and a lot of the European banks that had been in trouble, southern European in particular, are now starting to see an incremental improvement,” Bencke said in an interview in Stockholm.
“So there’s a much bigger inflection point in valuation in those banks than there is in the Nordics. That’s … keeping us away from the Nordic banks.”
Investors have so far stayed loyal to banks in the Nordic region, where prosperous and stable economies have been relatively unscathed by the wave of financial shocks to have hit since 2008.
Nordic lenders have also tended to take a more cautious approach on capital adequacy.
But that investor loyalty has driven up valuations, potentially leaving less room for price gains. Sweden’s four biggest banks are all in the top half of Bloomberg’s index of European financial stocks, based on price-earnings ratios for 2018.
Shares in Nordea Bank, the biggest Nordic lender, have soared about 50% over the past 12 months, versus the Bloomberg index’s 35% rise.
Meanwhile, banks further south are starting to emerge from years of trouble.
In Spain, Banco Santander’s recent takeover of Banco Popular Espanol (a key test of European resolution rules) shows southern Europe’s banks are successfully dealing with their weakest links. (Though Italy is still trying to figure out how to handle its struggling banks.)
“Southern European banks in particular have a lot of problem assets, which had been aggressively marked on the books,” Bencke said.
INVESTOR LOYALTY HAS DRIVEN UP VALUATIONS, POTENTIALLY LEAVING LESS ROOM FOR PRICE GAINS
“These banks are now able to offload some of those problem assets at losses that are smaller than the losses they’ve already taken,” he said.
“So we’re starting to see again, assuming the recovery continues, it’s quite a good inflection point for those banks with more difficult assets.
“Which is something the market’s been waiting for for years.”