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After a Lost Decade, JPMorgan Sees European Banks Outperforming

European banks are preferred over U.S. peers for the first time in three years, according to JPMorgan Chase and Co. analysts.

After a Lost Decade, JPMorgan Sees European Banks Outperforming
Silhouette of a person against towers. (Photographer: Akio Kon/Bloomberg)

(Bloomberg) -- European banks are poised to outperform the broader market in the first half of 2020, and are preferred over U.S. peers for the first time in three years, according to JPMorgan Chase and Co. analysts.

Investors should remain cautious on the sector in the long-term, but short-term outperformance is possible as European lenders offer a 15% upside potential, analysts led by Kian Abouhossein said in a note Wednesday.

Among positives for European lenders, analysts point to capital at risk being limited, a long-awaited upgrade to earnings per share, and total shareholder return close to double digits.

Banks have been the second-worst performing sector in Europe’s Stoxx 600 Index over the past three years, falling 16% while the entire index gained 15%.

European banks also lagged behind U.S. peers in the S&P 500 Banks index, which more than tripled over the past 10 years while the Stoxx 600 Banks Index fell 35% over the same period.

After a Lost Decade, JPMorgan Sees European Banks Outperforming

JPMorgan analysts see stock picking as vital to benefit from this expected outperformance, preferring stocks with “safe” dividend yields such as KBC, ING and DNB, and lenders that are undervalued amid excessive market caution such as Barclays and Societe Generale. They recommend to avoid banks exposed to low rates including Bankia and Commerzbank, and consider HSBC and Handelsbanken to be valued at an unjustified premium.

To contact the reporters on this story: Macarena Munoz in Madrid at mmunoz39@bloomberg.net;Jan-Patrick Barnert in Frankfurt at jbarnert3@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Lukas Strobl

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