Credit quality has barely featured on investors’ radar this year, but that complacency showed cracks on Friday as European bank shares slipped 2.5%.
The fall, modest by historical standards, was led by investment banks and marked one of the sector’s few setbacks in an otherwise strong year.
Benjamin Goy at Deutsche Bank says lenders’ solid track record and steady flow of positive earnings surprises have kept concerns over credit risk low.
As a result, investors initially shrugged off the recent correction in global credit markets and a series of high-profile US corporate defaults.
Those defaults, some reportedly involving fraud, have so far been confined to the US, with losses expected to hit American banks, securitisation vehicles, leasing firms and specialist private credit funds. European lenders, by contrast, appear largely insulated.
Even so, the episode has reminded investors that the long run of good news cannot last forever.
Europe’s banks have rebuilt capital and tightened lending standards since the financial crisis, but markets can turn quickly when confidence wobbles.
For now, the pullback looks like a pause rather than a panic, a healthy check on a sector still trading near post-crisis highs.