Santander, run by Executive Chair Ana Botín, on Thursday said it expected “no deterioration” in credit quality. Since lenders operate with slim equity buffers relative to assets, even a modest uptick in defaults can inflict large losses on shareholders. Rising prices, exacerbated by a Russian gas squeeze, a slowing economy and higher interest costs will all make it harder for households and businesses to repay debts. European Central Bank President Christine Lagarde and her counterpart at the Bank of England are hiking rates to stem inflation. The current level is roughly in line with valuations during the second Covid-19 wave in 2020 and the 2012 euro zone crisis.
Banco Santander (SAN.MC), BNP Paribas (BNPP.PA), ING (INGA.AS), Lloyds Banking Group (LLOY.L) and Société Générale (SOGN.PA) trade at 56% of forward tangible book value compared with 75% back then, according to Refinitiv data. 18, the week before Russia invaded Ukraine.
The region’s five biggest lenders, measured by the size of their loan books, are down 27% on average since Feb. Rising interest rates and a cost-of-living crisis will cause economic pain, but the pessimism looks overdone. LONDON, July 29 (Reuters Breakingviews) - European bank investors are worried about a wave of loan defaults.
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