bullish
Licence to print money
SUMMARY
- The European Banks story is starting to play out as, while Macro Investors continue to speculate on GDP and inflation trades, news flow from corporates means bottom up investors are starting to realise that the end of Zero Interest Rates (ZIRP) means huge improvements in Net Interest Margins (NIMs) for banks, which in turn means huge upgrades in revenues, even without any new loans.
- Announcements of increased dividends and buybacks (eg Unicredito) have come against a background where, despite some nice moves already, those same banks are still priced for a recession that many are starting to think may not be as bad as first thought, meaning the macro specialists are also starting to rethink.
- The combination of low valuation, operational leverage, the end of regulatory restrictions on dividends and buybacks and a general improvement in pricing power and competitive advantage is sector wide – and in fact not limited to banks -but for those banks with a deep and rich deposit base it is that NIM story that is the most powerful; having a large deposit base in this new New Normal is, quite literally a License to Print Money.
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