European banks outside of the euro zone remain more attractive than their euro bloc counterparts, according to Nomura, which favours lenders with little exposure to the region’s debt crisis.
“While central banks can help alleviate short-term liquidity concerns and perceived tail risk around euro zone fragmentation, giving a short-term boost to the sector, the north/south or (non-euro zone/euro zone) divide in Europe is deeply entrenched,” Nomura says in a note.
The banks’ analysts favour banks such as the UK’s Standard Chartered and HSBC, as well as Swedbank, DNB and UBS , given the headwinds of weaker economic growth in peripheral Europe and higher funding costs that their euro zone peers face.
However, with investors underweight banks in general, Nomura sees valuations in banking as a whole as attractive, with potential for share price performance even without growth in the book value of the banks, as the sector is currently rated so cheaply.
“With several stocks in the sector at barely half the multiple at which they traded in 2011, the share price performance for some banks could be more driven by re-rating than by book value growth,” the bank says in a note.
“This would suggest some exposure to those banks that we believe have the potential to ‘re-rate at a reasonable risk’.”
In this respect, the bank highlights French banks BNP-Paribas and Societe Generale, although it says Italian banks that trade at low valuations would also perform strongly if economic growth were to surprise on the upside.
Italian domestic lenders Monte Paschi, BP Milano and Banco Popolare trade at 0.2-0.3 times their tangible book value, compared to 0.4 for France’s Societe Generale and a 0.7 multiple for BNP-Paribas, Thomson Reuters Starmine data shows.
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