European banks are nearing a turning point as a region-wide asset review promises to accelerate a “healing process,” according to analysts at Citigroup Inc.
“The European banking sector is passing an inflection point over the next 12 months -- on capital, restructuring and real economy -- which should support dividend yields and earnings upgrades,” London-based analysts including Kinner Lakhani wrote in a note to clients today.
Citigroup reiterated an overweight rating on the industry and said a transition to European Central Bank supervision should reduce a “sector risk premium” on bank stocks. The ECB, scheduled to begin overseeing lenders in the euro area in October 2014, is preparing for a review of banks’ balance sheets and will offer more details on the probes next month.
ING Groep NV, the biggest Dutch financial-services firm, and BNP Paribas SA, France’s largest bank, were added to Citigroup’s most-preferred list, which also includes Britain’s Barclays Plc and Nordea Bank AB of Sweden.
ING rose 0.1 percent to 8.58 euros by 12:50 p.m. in Amsterdam, while BNP advanced 0.2 percent in Paris and Barclays gained 1.6 percent in London. Nordea dropped 2.5 percent to 77.20 kronor ($12.01) after Sweden sold its 7 percent stake in Scandinavia’s biggest bank at 76 kronor per share. The 44-company Bloomberg Europe Banks and Financial Services Index dropped 0.4 percent.
While ECB oversight should help reduce concerns around the industry, “there are clearly ‘tail risks’ for banks with relatively high problem loans and low coverage, relative to capitalization,” the analysts said.
Banco Popular Espanol SA fell 1.7 percent to 4.27 euros after Citigroup added it to its list of least preferred European banking stocks, citing risks from asset quality deterioration.