The 13-quarter record of consecutive gains for European bank stocks came to a sudden end, as the Iran war and AI are hitting private lending and becoming a "double-edged sword".

The concerns stemming from the impact of the Iran war and artificial intelligence (AI) on the private credit market have raised worries that European bank stocks may end their record-breaking streak of 13 consecutive quarters of gains. With the optimistic sentiment towards strong earnings and capital returns being replaced by concerns about the impact of the Iran war and funds fleeing the private credit market, the Stoxx 600 Banks Index recorded its first quarterly decline since the fourth quarter of 2022, falling by 8.7% since the beginning of the year. This decline was fueled by market worries that soaring energy prices would drag down the overall economy. Industry research analysts Herman Chan and Philip Richards stated, "If the Iran war lasts a long time, global banks' concerns about stagflation will further escalate. A sustained global supply shock could have a more serious impact on European banks." They added that Europe is more impacted by the energy market than the US. Even before the conflict broke out, credit concerns had been weighing on European bank stocks. Following several notable risk events that raised concerns about loan quality and the risk exposure of software companies threatened by AI, the $1.8 trillion private credit market is facing investor withdrawals. Deutsche Bank was the worst-performing stock this year, with a cumulative decline of 25%, after disclosing a high private credit risk exposure of up to 260 billion (approximately $300 billion). UBS Group, Barclays Bank, and UniCredit also recorded double-digit percentage declines in their stock prices. However, analysts remain optimistic about the long-term outlook. JPMorgan Chase stated that direct private credit risk exposure seems manageable, and market volatility caused by the war may boost investment banking revenues. Investor sentiment is also largely unaffected. A survey by Bank of America in March of European fund managers showed that a net 29% of respondents remained overweight on the sector. Keefe, Bruyette & Woods analyst Andrew Stimpson stated, "Caution is understandable and prudent, but we continue to reiterate our overweight view on the sector."