Deutsche Bank AG and Societe Generale SA are among lenders seen driving a 10 percent gain among European banks by year-end as investor concerns over their capital levels and legal bills ease, JPMorgan Chase & Co. analysts said.
European bank shares, tracked by the benchmark Stoxx 600 Banks Index, will reverse their underperformance relative to the broader market in recent months, the analysts including Kian Abouhossein wrote in an e-mailed report yesterday. The banks index, down 3.2 percent in the six months through Sept. 1, today rose 0.7 percent to 198.06 as of 11:15 a.m. in Frankfurt.
The European Central Bank is leading an unprecedented regulatory scrutiny of the financial health of the region’s biggest lenders as it prepares to assume their supervision, an effort to restore confidence in the industry. European banks have also faced investor concerns that fines and settlements would erode capital after France’s BNP Paribas SA paid a record $8.97 billion penalty for breaking U.S. sanctions in July.
The “ECB stress test should be a positive event,” the analysts wrote in the report. All 34 European banks JPMorgan tested passed its own assessment, which used the same 5.5 percent minimum capital ratio the ECB will employ in the more adverse of two stress test scenarios, they said.
The ECB is scheduled to release the results of its tests and examination of the balance sheets of 128 euro area lenders next month. Firms will have six months to raise equity to cover any shortfalls identified in its balance sheet review or the milder stress-test scenarios, and nine months to address deficiencies resulting from the more-adverse scenario.
JPMorgan added Deutsche Bank, Germany’s biggest bank, Societe Generale of France and Amsterdam-based ING Groep NV to its list of “top picks,” according to the report. The analysts removed Caixabank SA after the Barcelona-based lender rallied 21 percent this year, the analysts wrote.