LIVE MARKETS-Bank earnings positive but stocks behaving strangely - UBS

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BANK EARNINGS POSITIVE BUT STOCKS BEHAVING STRANGELY - UBS

Last week was jampacked for European bank earnings, continuing an overwhelmingly positive Q1 reporting season for the sector so far, though according to UBS, bank stocks were acting strangely at times.

"Generally better than expected earnings and capital prints weren't always rewarded in on-the-day share price moves," they wrote in a note.

They highlight April 30, when the broader equity market rose around 0.5%, while banks dropped about 1.6% despite reporting better earnings.

The moves prompted calls to UBS from clients seeking a clear explanation for what was going on.

"...it seems reasonable to conclude that valuations (or uncertainty around the outlook) have reached a level at which the bar for adding bank exposure has become challenging for some observers," the bank's analysts said.

A basket of European banks .SX7P is basically flat since pre-April 2 levels - and that is despite substantial ex dividend impacts - says UBS.

The same basket is up 22.5% this year, outperforming the STOXX 600 .STOXX, which has risen 5.9%.

According to UBS calculations, lenders are trading around 7.9x full year 2026 EPS, a 41% discount to the broader market.

About 80%-90% of banks are beating on Q1 earnings so far, and while concerns over the macro outlook have got a lot of air time on analyst calls, they are not yet evident in the numbers says UBS.

(Lucy Raitano)

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