Buy European banks on Italy news

Reasons to buy European banks stocks continue to mount. We are seeing heavy demand for single names as news that a deal has been negotiated to wind up two failed Italian lenders.

Under the agreement, Italy’s largest retail bank Intesa Sanpaolo will acquire the remaining performing assets of collapsed Popolare di Vicenza and Veneto Banca. Intesa shares increased 3.2% on the news that the Italian government will pay €5.2 billion and provide guarantees of up to €12 billion. Basically, this was a risk-free deal for Intesa Sanpaolo as the Italian government removed the risky assets and provided capital.

Italy’s banking sector has long weighted on investors’ minds as a source of uncertainty. While there is still worries that other Italian banks will need saving, investors are confident there is a solution, limiting contagion.

Gloomy political headlines and weak profitably have left the European banking sector being the global financial equity recovery but that is shifting. Europe, and specifically the European banking sector, is lagging in the investment cycle so valuations will provide better opportunities.

With surprisingly solid economic momentum, monetary policy that has not been fully priced-in, political threat fading and profit growth improving, despite a recent rally EU banks valuations are not overly stretched and provide value among developed markets banks.

Peter Rosenstreich – Head of Market Strategy – Swissquote