“The stock market is pricing either a big recession coming up or the fact that maybe the marks on some of the assets in some of those European banks are incorrect,” Filippo Alloatti, a senior credit analyst at Hermes Investment Management, told the WSJ, adding that while the banks will have trouble growing profits, they remain well capitalized.

The most recent round of safe-haven investing, which pushed rates down, with some Europe government bond yields back in the negative, are constraining European banks’ profits by tightening net interest margins, or the difference between what banks pay for funding and make from loans. Moody’s analysts calculate that German banks see net interest income account for almost 70% of revenue and most interest-earning assets are long-term, so any future benefits of rate rises would come with a lag.

“Equities are rising partly because the cost of credit is not going to increase as quickly as people expected and that’s good for everyone except for banks,” Jason Napier, head of European banks research at UBS, told the WSJ.

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