Sam Theodore has come up with his key takeaways following UBS’s takeover of Credit Suisse.

Collections on Italian NPL securitisations fell 56% month-on-month in January, maintaining the pattern of the previous two years. January 2023 also saw the highest share of judicial proceeds since we started our monthly analysis in March 2020.

The market panic that took hold yesterday does not reflect reality. There is no rational basis to the view that Europe’s large banks are in crisis. The opposite is true.

Concern about Germany’s small banks, particularly savings and co-operative banks, has been rising. But a strong regulatory framework, a granular customer base, significant financial reserves and a stable economic environment make contagion risk unlikely.

We are not witnessing the beginning of another banking crisis. SVB is not symptomatic of the state of US or European banking. Sentiment on most large European banks will bounce back. Sam Theodore offers key takeaways for European banks and supervisors.

The US bank failures of recent days and the risk of more fallout do not alter the positive base case we laid out for European banks in early 2023, although the latitude for unforeseen outcomes in a fast-moving, volatile situation demands caution.

The extent to which Russia’s war in Ukraine has opened a Pandora’s Box cannot be understated. It has considerably heightened geopolitical risks for many large European banking groups with an international presence.

We expect French banks to achieve reasonable results in 2023 despite multiple headwinds: a slowing economy, country-specific characteristics delaying the benefits of rising rates, pressure on cost bases from inflation, and weakening asset quality.

The future of European banks will be decided by their success in digitally transforming their business models and profitability drivers yet banks continue to under-invest in this area.

The bond market has enjoyed favourable conditions since the start of the year but Scope’s European Financial Conditions Index has started to tighten in response to sticky inflation, meaning borrowers are likely to face more difficult funding conditions.