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Monday, February 8, 2016

Why a selloff in European banks is ominous

European banks have been caught in a perfect storm of market turmoil, lately.
Lackluster profits and negative interest rates, have prompted investors to dump shares in the sector that was touted as one of the best investment ideas just a few months ago.
“The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors.”
Peter Garnry, head of equity strategy at Saxo Bank.
The region’s banking gauge, the Stoxx Europe 600 Banks Index FX7, -3.48% has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May, according to FactSet data.
 
“The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors,” warned Peter Garnry, head of equity strategy at Saxo Bank.

The doom-and-gloom outlook for banks comes as the stock market has had an ominous start to the year. (READ MORE)