Italian, German Financials Rally on Deposits Data, Spain Mixed

Deposits in peripheral European nations' ailing banks recovered nicely in December as lessening concerns over the health of the Eurozone increased confidence in the financial sector. Since the onset of the crisis, capital has flowed out of peripheral banks and into those of core nations, mainly Germany.

In December, this pattern reversed further as money flowed from Germany to other nations. Greek bank deposits, which have seen massive capital outflows since it revealed its debt woes in 2010, rose 4.1 percent in December alone, showing that savers are starting to regain confidence in the health of the Greek banking system. Normalizing capital flows within the Eurozone will help in internally devaluing the peripheral nations back to competitiveness and also help to mitigate the Target II imbalances. within the zone.

Elsewhere in the Eurozone, Spanish bank deposits rose 0.3 percent and French bank deposits rose 2.2 percent as savers returned to beleaguered French banks but still remained cautious of those in Spain. German deposits fell 1.5 percent in December, a positive sign that flows may be beginning to normalize within the Eurozone, and deposits in Cyprus declined 0.6 percent as the country prepares for a restructuring. Lastly, Italian deposits rose a massive 3.7 percent in the month as savers became more confident that the upcoming elections will not be negative for the economy.

Other positive news for Italian banks was released over the weekend, Banca Monte dei Paschi di Sienna, the world's oldest bank, unexpectedly requested new bailout funds from the Italian government last week. Over the weekend, the government approved the new capital plan, paving the way for the bank to receive more bailout funds. Shares of the bank rallied 5 percent in Milan trading, leading the financial sector higher as a whole in Italy.

Spanish financials were late to the proverbial party in early trade, as the much more muted deposit growth data was offset further by weak lending data. New data released Monday showed that the number of mortgages created in November of 2012 and also the total amount of mortgage capital declined strongly from the same period a year before. Spanish mortgages in November fell a whopping 31.6 percent from November 2011 and total mortgage capital, the cash value of these mortgages, fell 34.4 percent from November 2012.

Financial stocks were strong across the continent save for Spain. Italian financials were strong in early trade led by Banca Monte dei Paschi, Banco Popolare, and Intessa Sanpaolo. German banks rallied nicely as well as Deutsche Bank DB shares rose 0.42 percent in Frankfurt trading. French banks rose as well with Credit Agricole rallying nearly 2 percent and BNP Paribas rising almost 1 percent. Spanish banks were mixed as CaixaBank and Bankinter rallied with Banco de Sabadell declining 0.46 percent.