Strong start to earnings season – US banks already reversing loan loss provisions
US bank earnings are off to a strong start, though you would not know it by looking at the stocks. Following the very well-worn path of rallying into JPM earnings and then selling off, US large cap bank stocks are down a median 5% since earnings season kicked off, even as forward earnings (2023) up a median +3%. So there has been some de-rating, but this is perhaps unsurprising after the strong move in the past several months which left the group trading ~25% above historical average pre-provision multiples. There are also questions on quality, as banks have beaten primarily on credit (accounting for nearly 90% of the beats relative to consensus so far this quarter), though forward pre-provision numbers are being revised modestly higher as well. US banks clearly took their medicine early on credit and are now reaping the benefit of massive reserve releases (especially for consumer loan exposures, less so for CRE). The stocks largely reflect this. But to the extent European banks can beat on credit as well, it should have perhaps more important implications for stocks still trading well below tangible book value and with payout yields dependent on current year earnings.

Europe seeing dramatic increase in pace of vaccinations – Approaching herd immunity by late June?
After a slow start, major European countries are now seeing a robust pickup in the pace of vaccinations. The daily rate of vaccination has risen 50% from ~0.4% of the population per day in early April to ~0.6% currently. Using Israel as a benchmark given the advanced stage of its rollout, the pace of vaccinations and number of COVID cases both started to fall sharply as the % of population receiving a dose approached 60% in March, suggesting this level as a potential threshold for functional herd immunity. With 20% of the population having received a dose in Europe, at the current pace the 60% threshold would be reached by late June – to say nothing of potential further acceleration as supply and distribution bottlenecks are resolved. If the story of Q1 was the US reopening trade, perhaps the story for Q2 will be the handoff to Europe – indeed we may be witnessing this already as German 10Y Bund yields have traded 8bps wider in April vs US 10Y Treasury yields 16bps tighter.

Credit Agricole increases takeout price for Credito Valtellinese
After months of back-and-forth with Credito Valtellinese (CreVal) management and shareholders, Credit Agricole (CA) revised its all-cash offer for the bank from €10.50 to €12.50. CA has now reportedly secured more than 50% of CreVal’s shares with this tender offer. The deal will cement Credit Agricole Italia’s position as the #6 bank in Italy, allowing it to increase its footprint and increase efficiency through cost synergies. M&A continues to be a hot topic in the European banking sector, with more domestic consolidation expected following a flurry of deals over the past year in spite of the uncertainties created by the pandemic.