LIVE MARKETS-Valuation gaps closing; European banks re-rating vs US 'overdone' says JPM

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

VALUATION GAPS CLOSING: EUROPEAN BANKS RE-RATING VS US 'OVERDONE' - JPM

J.P.Morgan analysts said the valuation gap between European and U.S. banks has narrowed quicker than their expectations and that the re-rating of European banks against their U.S. counterparts was now 'overdone'.

JPM brought down their recommendation for European banks over U.S. banks to 'neutral' from 'overweight', considering the valuation discount has narrowed to just 16%.

"The underperformance of US banks has gone far enough and we now hold a more balanced position," said JPM strategists led by Kian Abouhossein.

"Should the US go into a recession, European Banks are unlikely to outperform considering their global exposures as well as high leverage," Abouhossein added.

Europe's STOXX banking sub-index .SX7P has gained 27% so far this year compared to a merely 1% gain in the KBW bank index .BKX that tracks the performance of U.S. banks.

JPM expects that with the reduced risk of ECB rates falling below 1.5%, it could mean that banks' earnings are more secure, with likely less pressure on net interest income.

That said, the brokerage expects earnings-per-share for the European bank sector at 3-4% per annum on average for 2025-2027. Earnings grew 15.1% last year, according to data from LSEG I/B/E/S.

JPM's top picks for the sector are Barclays BARC.L, Deutsche Bank DBKGn.DE, Intesa ISP.MI, UBS UBSG.S, Societe Generale SOGN.PA and Natwest NWG.L.

However, the brokerage sees risks for European banks due to uncertainties from geopolitical tensions and Trump's tariffs.

(Akriti Shah)

TUESDAY'S OTHER LIVE MARKETS POSTS:

CTAs SHED $100 BILLION OF STOCKS CLICK HERE

POSITIVE START ON TARIFF OPTIMISM CLICK HERE

EUROPE BEFORE THE BELL: STEADY AS SHE GOES CLICK HERE

RELIEF RALLY STARTS TO FIZZLE CLICK HERE