As reported by Isabella Bufacchi for Il Sole24Ore, the boom in profits of Eurozone banks it does not appear to have been reflected in the stock market movements: bank prices, in practice, do not even seem to have returned to the levels pre-pandemic levels. The factors that emerge from the ECB study in the appendix to the Financial Stability Review (FSR) on this issue are many.
The reason behind this phenomenon could be attributed to one long series of factors, including investor concern that high risk-free rates mechanically increase the discount factor, reducing the net present value of future bank dividend flows. Furthermore, according to what the newspaper reports, there is great uncertainty and the credit risk could rise again, just as the danger of new taxes on dividends and profits or profit distribution policies – which are being announced more and more frequently.
According to experts “the cost of equity of European banks has increased due to the effect of the increase in rates and returns on risk-free assets, but also due to concerns about banks’ exposure to credit risk, which have depressed bank valuations from late 2022.”
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