Interest Rates

U.S. Banking Optimism Infects Europe

  • Why it matters

    Why it matters

    European banking shares have recorded strong gains following the election of Donald Trump as U.S. president, which is expected to be good news for the banking sector.

  • Facts

    Facts

    • Mr. Trump has promised to cut taxes and relax regulation in the banking industry, which has massively boosted the sector in the United States.
    • Shares in Deutsche Bank, Germany’s largest bank, have gained more than 50 percent since the beginning of October, following a record low in September.
    • Yields on long-term U.S. and European government bonds have also risen, initially due to climbing oil prices and then further on the back of Mr. Trump’s promises to boost the U.S. economy.
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    Audio

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financial_district_new_york_reuters
New York's financial district. Source: REUTERS / Lucas Jackson

U.S. president-elect Donald Trump’s promise to cut taxes and boost government spending has driven up long-term interest rates and led to an unexpected comeback in the U.S. banking sector, with banks’ share prices rising at a rate not seen since the boom before the financial crisis.

This newfound optimism has spread to Europe. Analysts at JP Morgan are recommending shares in European banks with a low valuation and a high financial surplus, such as DNB in Norway, ING in the Netherlands and Lloyds in Britain. They expect French bank Société Générale and Spain’s Santander to achieve growth in earnings per share, and also favor Swiss bank Credit Suisse and French bank Natixis, as a relatively large proportion of their business comes from the United States.

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