Value Column by Hans Peter Schupp

13 AUGUST 2025

Here we go again, I guess

Hans Peter Schupp, Managing Partner of Fidecum AG und portfolio manager of the Contrarian Value Euroland Fonds (ISIN: LU0370217092) takes a close look at the valuation of European banks.

The head line not only quotes an evergreen by German pop singer Roland Kaiser, but also describes the current situation in the banking landscape quite accurately.

Remember! In 2008, banks were struggling. Not because they lacked capital, but because they had too much of it beforehand. They had been overcapitalized for a long time, at least according to the regulatory requirements at the time. The pressure to do something meaningful with this capital increased enormously.

Too much capital encourages risky decisions

They should, of course, have returned the surplus capital to shareholders in the form of dividends or share buybacks. Instead, the motto was “growth at any price.” Higher risks were accepted when granting loans. Takeovers were intended to enable expansion, with prices being paid that seem surreal in retrospect.

Two examples: ABN Amro paid €9 billion for Italy’s Banca Antonveneta – around 1.5 times its book value. After the crisis, bank shares were then trading at only 0.3 times their equity capital. Crédit Agricole (ISIN FR0000045072) acquired the Greek Emporiki Bank for €2.8 billion. This was followed by capital injections of a further €4.85 billion – only to eventually pass on the institution for a symbolic euro.

Don’t get me wrong: takeovers are not fundamentally bad. But one of my most important lessons learned in more than 30 years as a fund manager is that shareholder value is not always the primary focus.

16 years of consolidation have now come to an end

It took European banks 16 years to overcome the legacy issues from the period of exuberance and strengthen their capital buffers. This was because the supervisory authorities had reacted radically to the financial crisis. In the aftermath, capital requirements were raised significantly. While the Tier 1 ratio was around seven percent in 2007, it is now around 13 percent.

So the banks had their work cut out for them – and they delivered. They are currently very well capitalized again. Deutsche Bank, for example, has a Tier 1 ratio of 14.2 percent. UniCredit also shines with a capital ratio of 16 percent.

After a long dry spell, earnings have climbed again in recent years. The capital markets rewarded this development, and the European banking index tripled.

However, the question now arises as to whether the valuations are still justified after this massive rise in share prices. We have our doubts. This is because banks will never again be able to operate as profitably as in the past due to increased capital requirements.

This means that, going forward, the temptation is likely to rise again to increase returns by taking higher risks and making expensive acquisitions. The takeover merry-go-round is starting to spin once more.

Capital is now once again abundant

And here we go again I guess. UniCredit (ISIN: IT0005239360) is planning to acquire Commerzbank (ISIN: DE000CBK1001). ABN AMRO (ISIN: NL0011540547) is forming Germany’s third-largest private bank through the purchase of Hauck Aufhäuser Lampe. And Erste Group (ISIN: AT0000652011) is acquiring shares in Santander Bank in Poland for €6.8 billion.

Our conclusion: We are reducing our involvement in the banking sector

We invested heavily in the European banking sector in 2019 because we believed that bank stocks were undervalued. Whether prices are justified after the massive rise in the banking sector is questionable. Banks will never be as profitable as they were in the past due to increased capital requirements, which is why we have significantly reduced our investment quota in the banking sector.

Our investment approach

For 25 years, the Contrarian Value Euroland Fund (ISIN: LU0370217092) has been following a clear path: we do not invest in sentiment, but in value. Our actions are guided not by fashion trends, but by the valuations of fundamentally attractive companies. We are not attracted by what is loud or obvious, but by what really matters.

About the author:

Hans Peter Schupp is a managing partner at Fidecum AG and portfolio manager of the Contrarian Value Euroland Fund.

Convenience translation!