Eight years after Lehman, European bank shares still firmly in the red

Eight years since Lehman Brothers declared bankruptcy, European bank shares are down more than 50 percent on levels before the US investment bank's collapse, lagging their US peers and stock markets generally.
Broader markets have recovered since September 15, 2008, with the pan-European STOXX 600 up more than fifth. Bank shares, though, are only half their levels on that day, on aggregate.
Shares of three banks - Eurobank and Alpha Bank in Greece and Italy's Banca Monte dei Paschi - have lost more than 99 percent. Commerzbank is down 94 percent, while the worst performing FTSE 100-listed lender, Royal Bank of Scotland, is off 92 percent.
While not quite as grim as banks' performance, European metals and mining stocks also languish well below pre-Lehman levels. The sector index is down 45 percent with Arcelor Mittal down 85 percent and Anglo American down 68 percent, the biggest casualties.
On the other side of the performance ledger, so-called defensive sectors such as healthcare, food and beverages, and household products dominate and have all doubled in value, underscoring the flight to safety among European investors as a debt crisis stalled growth and hit corporate earnings.
At the single-stock level, the performance is more surprising.
Swedish biometric firm Fingerprint Cards, up 9,228 percent, is the best performing stock among current STOXX 600 constituents, followed by chipmaker Dialog Semiconductor, up 3,714 percent.
In the United Kingdom, Ashtead Group's 1,419 percent rally makes it the best performing FTSE 100 stock followed by Paddy Power Betfair , which is up 822 percent.
For investors, a huge underweight in European banking stocks has paid off but a strong rally off the lows following the Brexit referendum has investors pondering whether the rally is sustainable.
Some funds have turned less bearish. A global fund manager survey by Bank of America/Merrill Lynch on Tuesday showed allocation to banks had risen by 7 percentage points, although investors remain "underweight" the sector.
When compared with peers in the United States, where the prospect of a rise in interest rates appears more likely, the deterioration in fundamentals for European banks is stark.
"Banks in the US have much healthier balance sheets, and have a much better level of non-performing loans that don't clog up the banking system, as well as positive rates to help net interest margins," said Veronika Pechlaner, European equity fund manager at Ashburton, who is "underweight" European banks.
US banks on the S&P 500 banks are up more than 14 percent since the day before Lehman.