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Citi
acknowledged headwinds facing the sector such as pressure on
profits from ultra-low interest rates, regulatory costs and
potential dilution, but added it saw negative risks as being
more on selective, individual banks rather than being
system-wide.
European banks are trading at their cheapest relative to U.S.
peers, Citi said, with stocks priced for disappointments rather
than reducing risks.
The volatile trading in the shares of European banks, the
biggest regional laggards in terms of year-to-date performance,
has put portfolio managers in a tough 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, referring to the post-Lehman bankruptcy period
in financial markets that has been punctuated by a slew of
risk-off events in Europe from a sovereign debt crisis to more
recently the potential fallout of the UK leaving the European
Union.
In their analysis across 285 global sector and regional
combinations, European banks are among the worst performing over
the past decade, Citi said, adding that buying them would be the
world's biggest contrarian trade.
The STOXX Europe 600 banking index <.SX7P> was up 0.8 percent on
Thursday, but remains down by around 20 percent since the start
of 2016.
(Reporting by Vikram Subhedar; Editing by Sudip Kar-Gupta)
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