For European banks’ stockholders, 2020 was a year to forget. But bank bondholders enjoyed positive returns and may overcome COVID-19 challenges again in 2021, backed by solid balance sheets and supportive regulatory conditions.
European banks’ additional Tier 1 securities should survive a short bout of the coronavirus. But even in a prolonged pandemic, the risk/reward trade-off might be better than perceived.
European Banks have mostly been magnets for bad news and disappointment for their equity holders. But we believe other parts of the banks’ capital structure offer solid returns, backed by resilient balance sheets.
Yield-hungry investors are quickly regaining their taste for deeply subordinated bank bonds. Some of these securities offer appetizing yields, but it’s important not to overindulge.