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Stellar or meteoric? European bank shares have blasted off again in 2013. Those in the FTSE Eurofirst 300 banks index are a third more expensive than they were a year ago – but still two-thirds below their pre-crisis peak. Yet not much has changed: No new certainties have emerged to change the backdrop so dramatically. Economic activity is still subdued – or, in the euro zone, contracting. True, regulators have eased rules to reduce their pro-cyclicality. These days investors are the real regulators holding banks to higher capital levels and greater risk-weighted asset transparency. Even so, banks look to be running ahead of themselves.

European banks trade at 0.8 times book value, up about 50 per cent in a year, though down by the same proportion from five years ago. Euro zone banks, however, have rebounded by only a third in the past year. Sure, funding markets are easier, with some of the sovereign sting removed by European Central Bank support, but there are still plenty of small-bank laggards. Banks in the euro zone need to deleverage a further €130-billion ($167-billion) this year, Ernst & Young estimates.

Some European banks (hello UBS and RBS) have grasped deep shifts in their markets and restructured. UBS, up two-fifths over the year, has outperformed yet-to-change Credit Suisse, which is up less than a fifth. RBS, a bigger recovery bet, exited equities; its shares are up nearly two-thirds. But accident-prone Société Générale, another recovery story, has risen a heady 100 per cent off a low base. It still needs to prove it is on course.

There are still plenty of risks to ratings. Lenders, such as Deutsche Bank and HSBC for example, still have to pass through the Libor-rigging mill. And the long arm of U.S. regulators will continue to trip up banks in Europe – when they are not tripping over themselves. Investors who grasp how little has changed might want to take profits now.

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