Morgan Stanley says its focus is on a few cheap banks where it sees strong earnings power in their core franchises and reasonable odds that they can accelerate restructuring, exit non-core assets effectively and start to pay good dividends.
It prefers banks including UBS, BNP Paribas, Barclays and Swedbank, and says that "the market underestimates the possibility that we are over the most pernicious phase of deleveraging, particularly of banks de-globalising."
Morgan Stanley's least preferred stocks include Bankinter and Sabadell.
"Our outlook for European bank earnings continues to be plagued by a weakening economic backdrop, deleveraging, low/negative rates, and higher bad debts ... We see bad debts still accelerating in Spain and Italy."
UBS advances 0.9 percent, BNP gains 1.3 percent, Barclays rises 0.6 percent and Swedbank is up 0.2 percent. Bankinter and Sabadell gain 0.9 percent and 0.4 percent respectively.
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