European banks have a considerable upside potential over the coming year if the mean reversion in the German 10-year yield continues amid rising global inflation. A steeper yield curve and positive yields in Europe could take European banks' price-to-book ratio back to the recent historical average of 0.8x and then beyond. The industry has improved over the past years with Deutsche Bank being.
Our view is that the value vs growth, higher inflation, and higher interest rates, will continue the mean reversion happening in the German 10-year yield and help European banks move back to the average price-to-book ratio since 2009 of 0.8x and likely beyond to 0.9x helped by macro policies. This means from current levels that European financials could see a 20-40% upside over the coming 6-12 months.