Investors are taking fright at commercial real estate risks in Sweden. But we think the situation is less threatening than feared.

The COVID-19 pandemic looked set to batter the world’s banks—and yet banks’ balance sheets are now the strongest they’ve been since the global financial crisis (GFC).

For European banks’ stockholders, 2020 was a year to forget. But bank bondholders enjoyed positive returns and may overcome COVID-19 challenges again in 2021, backed by solid balance sheets and supportive regulatory conditions.

European banks’ additional Tier 1 securities should survive a short bout of the coronavirus. But even in a prolonged pandemic, the risk/reward trade-off might be better than perceived.

European Banks have mostly been magnets for bad news and disappointment for their equity holders. But we believe other parts of the banks’ capital structure offer solid returns, backed by resilient balance sheets.

Yield-hungry investors are quickly regaining their taste for deeply subordinated bank bonds. Some of these securities offer appetizing yields, but it’s important not to overindulge.