European banks are near their 2016 nadir, ‘time to buy’ says Citi analysts

Of late European banks have had a tough time: while they struggle to survive the post-Lehman brothers scenario, Britain’s historic decision to leave the EU has again taken a toll on the sector. As a result their share prices have hit rock bottom. According to Citi analysts it is “time to buy” their shares.

Citing signs of improvements in loan growth and credit cycles, analysts from Citi have upgraded their recommendation on stressed European banks.

The recommendation has come despite the headwinds faced by the European banking sector midst pressures of ultra-low interest rates and regulatory costs.

According to Citi analysts negative risks aren’t spread out across the entire banking spectrum, they are only limited to certain individual banks.

With European banks trading at relatively low levels in relation to their U.S. peers, Citi analysts opine that stock prices are likely to appreciate.

The volatility in the shares of European banks has placed portfolio managers in a tight spot.

“European banks have been the lightning rod for all post-GFC (global financial crisis) macro risk,” said Citi analysts in a note to clients. The research note refers to the post-Lehman brothers bankruptcy period which left financial markets in upheaval from a sovereign debt crisis and draws a parallel to the more recent crisis of Brexit.

In an analysis of 285 global regional banks, European banks have found their performance wanting said Citi. Buying them would be the world’s biggest contrarian trade.

Although the STOXX, the Europe 600 banking index, was up by 0.8% on Thursday, in the overall picture however it is down by as much as 20% since the beginning of this year.


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