Europe has made a valiant effort to seize back the banking shitshow crown it has owned for most of the past decade, but at the moment it seems the US still has a firmer grasp of it.
Deutsche Bank’s George Saravelos has sent over some interesting charts on how US and European banks are faring at the moment. Notwithstanding the messy final denouement of Credit Suisse’s yearslong faceplants, Europe still looks better.
European bank stocks have markedly outperformed US ones this year, both in the early-year rally, the subsequent sell-off and now the bounce. Credit-default swaps are also materially lower on European bank bonds.
Some of this is just the starting point that Saravelos chose (things would look very different if you used a 10-year timeframe!) but it’s also because the European banking deposit base looks a lot more stable.
“This points to the shock in the US being more systemic, broad-based and preceding the last few weeks’ volatility,” Saravelos argues.
To this we’d add that European banks are also far bigger relative lenders than US ones, as the bond market does far more of the heavy lifting on that side of the Atlantic. That means that European banks are probably more exposed to floating rate debt than fixed income bonds.
Saravelos argues this is why the European Central Bank is sounding a lot more hawkish than the Federal Reserve at the moment — the negative impact from financial stresses on broader credit conditions will be much greater in the US than in Europe.
That sounds right to us. But longtime Europe-watchers will know that the continent’s banks are adept at finding new rakes to step on.
