Euros

US fund managers have been making multibillion-dollar bets on the recovery of banks in the eurozone over the past four months in the belief that the region’s stuttering economic recovery will soon start to gather steam.

The move follows a slight increase in eurozone economic growth in the second quarter, which was seen by many investors as the clearest indication yet that the worst peacetime economic upheaval since the Great Depression is coming to an end.

The value of the shares reported as owned by US-based funds in the region’s 10 largest listed banks has risen 40 per cent from June this year to €33bn, according to FT calculations based on Thomson Reuters data. The number of shares reported as owned rose 10 per cent over the same period, following big investments from groups such as T Rowe Price, BlackRock, Waddle & Reed.

Jason White, portfolio specialist at T Rowe Price, said the Baltimore-based company had increased its exposure recently, adding that European bank stocks had started looking extremely cheap given the improving situation.

“The economy is moving from being a headwind to a tailwind, or at least to no wind, and that can be pretty powerful,” Mr White said. “Even if it is just a case that the trends stop getting worse, that can be a catalyst for shares.”

The Reuters data set, which relies on publicly disclosed information, details the ownership of about 40 per cent of the total outstanding shares in the 10 banks, giving a snapshot of many of the largest holdings.

Some investors and bankers said that the return of US money to the eurozone financial sector this year had been encouraged by a sense that European regulators may be getting a grip on the sector.

The European Central Bank is about to embark on an “asset quality review” of the eurozone’s banks, to be followed by an EU-wide stress test, with the aim of debunking sceptics’ fears that the region’s lenders are hiding a glut of bad assets.

Ruth Nagle, lead portfolio manager for the financial sector on BlackRock’s Global Opportunities funds, described the moves towards a single regulator under the ECB as “progress”. She said it would help standardise financial reporting and enable investors compare banks across the eurozone.

The rise in reported ownership by US fund managers follows a dramatic fall during the debt crisis in 2011, where the number of shares they held decreased by a fifth. The flow of crucial short term money markets funding dried also dried up.

The US share of ownership in the banking sector has been steadily increasing this year, but it has only really picked since June. However, the third-quarter growth figures was an anaemic 0.1 per cent, following the better than expected 0.3 per cent in the second quarter, which could dampen the trend.

There has been a return of US money market funds over the past year as well. Money markets funds have increased lending to eurozone banks by 89 per cent, to around €200bn, according to Fitch, the rating agency.

——————————————-

Letter in response to this report:

All-too-human investors merely chasing eurozone returns / From Mr Jonathan Citrin

Get alerts on Eurozone economy when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article