Berges, Ángel


Bank valuations: Good news and bad news

Positive earnings performance and lower cost of equity have led the European banks to outperform the general stock indices for the last two years; nevertheless, they have yet to close the gap between their market value and book value, despite the fact that their return on equity (ROE) is back above 10%, the threshold traditionally deemed necessary to close the valuation gap. While the inability to close this gap appears to lie with the fact that the cost of equity (CoE) required of the banks has increased above the conventionally assumed threshold of 10%, the discount at which the European and Spanish banks are currently trading seems excessive.

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CoCos and bank resolution: Overcoming March stigma

Given the fact that they are considered loss absorbing instruments in the event of resolution, CoCos have emerged as a very important barometer for measuring confidence in the banking system. Although the bail-in of CoCos during the rescue of Credit Suisse created a stigma that prompted the global CoCo market to collapse, the market has recovered in recent months, marked by a significant rebound in prices and, above all, in issuance activity.

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