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A single portfolio manager at Capital Group caused an €8 billion sell-off of European bank stocks this year following the Ukraine crisis and global recession concerns, the Financial Times reports.
Capital, until recently, had been one of the few active investors backing European bank stocks, which had been marred after a decade of depressed profitability, misconduct scandals, and market share losses as they restructured after the financial crisis.
Capital had built up large, top-five stakes in lenders, including Barclays PLC (NYSE:BCS), Deutsche Bank (NYSE: DB), Commerzbank AG (OTC:CRZBY), Societe Generale (OTC:SCGLY), UniCredit, Santander, BNP Paribas (OTC:BNPZY), and UBS Group AG (NYSE:UBS).
The drop in the European Stoxx and FTSE bank benchmark indices by 20% and 14% restored the belief in investors that European banks were inherently undervalued.
Portfolio manager Nick Grace had earned good returns as the global economy recovered from the initial shock of Covid-19, and central banks started to raise rates meaningfully for the first time in a decade.
Grace bet that European lenders were undervalued and traded at an unfairly steep discount to the book value of their assets and were poised to generate billions more in profits as interest rates rose, improving loan margins.
Grace and other managers hoped that a long-awaited consolidation would generate value through cross-border and domestic mergers.
But concerns over rising inflation and falling growth sparked by Russia’s invasion of Ukraine pushed Grace and some of his fellow Capital managers to sell €8.1 billion of those banks’ shares.
