Against expectations, European banks are thriving

Their fortunes looked much brighter on May 6th when Sabadell rebuffed another approach from BBVA, which this time offered €12bn. Shares in Europe’s big banks have risen by a fifth this year, more than twice as much as the broader market (see chart 1). Lenders are less risky—capital ratios have risen, the proportion of bad loans on their balance-sheets has fallen—and much more profitable (see chart 2). Higher interest rates, which benefit banks by widening the spread between what they receive on assets (loans) and pay on liabilities (deposits), have lasted much longer than expected. For shareholders, the good news keeps coming. On May 7th UniCredit, Italy’s second-biggest bank, reported a quarterly profit of €2.6bn, up 24% year-on-year. Its shares have soared by 46% this year. The same day UBS, a Swiss bank, announced its return to profitability a year after swallowing Credit Suisse.