European banks, with a capital shortfall of 300 billion euros ($406 billion), are taking substantial risks as they pursue unrealistic growth plans, according to Berenberg Bank.
While banks have ambitious targets for market share, they face more competition, weak economic growth and tougher regulation, Berenberg analysts Nick Anderson and James Chappell wrote in an e-mailed report from London today.
Commerzbank AG, Germany’s second-biggest bank, Credit Agricole SA (ACA) of France, Credit Suisse Group AG (CSGN), Spain’s Banco Santander SA (SAN) and UniCredit SpA (UCG) of Italy are among stocks investors should sell, Berenberg said.
“While ambitious revenue plans and the associated return on equity targets are unlikely to be met, there is a more worrying concern,” Berenberg said. “The pursuit of such growth rates builds substantial risk within the banks’ balance sheets.”
Europe’s lenders are seeking to raise revenue as the European Central Bank keeps interest rates at a record low, cutting the profit they make from loans and bond trading. At the same time, they have been shrinking their balance sheets to build up capital as the ECB conducts a review of their financial strength.
Investors should buy HSBC Holdings Plc (HSBA), ING Groep NV (INGA), Nordea Bank AB (NDA), Swedbank AB (SWEDA) and UBS AG (UBSN) as they stand to profit in the long-term by adapting to the environment and managing their costs and risk, Berenberg said.
Berenberg estimated last year that European banks faced a capital shortfall of 350 billion euros to 400 billion euros, according to the report.
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