Fears vs Fundamentals (again) For 2 years, European banks have enjoyed potent earnings upgrades. For 2 years, valuations have been trapped between ''unease'' and ''outright panic'' multiples. This note looks at the latest fears and fundamentals behind this ongoing struggle. We extract lasting lessons from Q1, a record profit quarter, and extend our work on the fears of the moment: ''peak NIM'', CRE and credit contraction. Peak NIM - no, not yet We refresh our top-down margin work for the latest industry pricing. ''Peak rates'' do not equate to ''peak NIM''. Management guidance to the contrary is likely aimed at other stakeholders. Consensus remains too low - in many cases what is priced as ''peak'' is more like ''normal'' in a 2.5% rate world. Applying trough multiples to ''new normal'' earnings is nonsensical. CRE - fears stoked, but are they founded? US regional bank stress has triggered surprisingly intense CRE fear. We collate fresh CRE disclosure, run credit loss stress-tests and argue for relative calm in Europe vs US, and 2023 vs 2008. The debate may not resolve quickly, but we prefer ''Squirrels'' (BAWAG) to ''Peacocks'' (SHB). Shrinking balance-sheets The market is preoccupied by ''deposit walks'', bank liquidity and credit crunch risks. We probe balance-sheet trends on both sides of the Atlantic. Europe''s enormous liquidity pile, previously a weakness, is now a strength. Credit demand is low: we question the economic significance of this. Valuations and Stock Selection History argues to buy banks when fear is high, multiples are low and earnings are rising. i.e. today. Disproving negatives is hard, hence re-ratings will require patience, which will be rewarded by double-digit distribution yields. Correlations suggest that the macro mood matters most. We stay bullish Eurozone retail and commercial banks, Top Picks: Caixabank, Unicredit, Commerzbank, Erste, AIB and Bankinter.