Is It Finally Time To Buy European Banks?

In a new report, Societe Generale analyst Geoff Dawes explains why the latest earnings numbers from European banks indicate that it may finally be time for buyers to return to the space. Societe Generale believes they are finally seeing signs of the long-awaited turnaround for European banks.

Upgrade Cycle

The most recent bank earnings have come in mostly ahead of Wall Street forecasts, and Dawes believes that upgrades in the space will continue into 2016. He sees credit growth and solid margins for banks as the European economy continues to solidify. Societe Generale has been cautious on the European banks for most of this year, but earnings strength has convinced the firm that now is the time to be overweight most banks stocks.

Related Link: 1.6 Billion Alibaba Shares Hit The Market In Less Than 2 Weeks

Expanding Opportunities

Societe Generale believes that traders are now safe to begin building positions outside of the top-tier, capital-rich banks. “With risk factors still at the front of the debate it is too soon to abandon the highest quality names in the sector, but now is the time to start supplementing quality with undervalued earnings power buried by questionable capital positions or restructuring uncertainties,” Dawes explained.

Risks Remain

Despite the favorable outlook, there are still several major macroeconomic risks to the European banks. These risks include European politics, China/EM, oil, growth stall and litigation/regulation.

Stock Picks

Societe Generale has Buy ratings on U.S.-listed European banks Barclays PLC BCS, ING Groep NV ING, Lloyds Banking Group PLC LYG and UBS Group AG UBS.

In addition, the firm has Sell ratings on Banco Bilbao Vizcaya Argentaria SA BBVA, Credit Suisse Group AG CS and Deutsche Bank AG DB.