Berenberg said profits at a handful of major European banks would remain strong despite expected interest rate cuts this week. Despite higher-than-expected inflation data, the European Central Bank appears set to cut interest rates this week for the first time since 2019. The banks with the greatest upside potential – Standard Chartered, Barclays, Nordea, UniCredit and HSBC – have performed strongly in recent years, a trend Berenberg analysts believe will continue. Shares of all five banks are also widely traded in the United States. Banks generally profit in a higher interest rate environment. However, European banks have lagged behind their global peers over the past decade as the European Central Bank kept interest rates below or near zero until 2022. This had a negative impact on investor optimism. “Bank investors are cautiously optimistic,” Richardson said in a note to clients on May 31. “Despite recent strong performance, the sector remains cheap at 7.4 times two-year forward earnings (earnings per share forecast).” “Furthermore, the structural characteristics of many banks’ balance sheets mean that the benefits from rising long-term interest rates will continue to grow even if central bank rates fall,” Lemberg said. The investment bank analyst also pointed out that although European banks’ balance sheets and returns have improved, they are currently trading at 20% below their long-term average valuations. Berenberg said historical data shows that between 1988 and 2020, European banks trade below current valuations only 6% of the time.
