LIVE MARKETS-UBS optimistic on soaring European banks, even as negative news takes a bite

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UBS OPTIMISTIC ON SOARING EUROPEAN BANKS, EVEN AS NEGATIVE NEWS TAKES A BITE

UBS is sticking with its overweight rating on European banks, despite the space delivering mammoth returns in 2025 which they admit means the shares could be more sensitive to negative news.

European and euro zone banks have delivered returns of 50%-60% this year, outstripping UBS's earlier expectations of a 25% return and dwarfing the markets' 12% return.

"Seven firms - Commerzbank, SocGen, Santander, DB, Sabadell, Unicredit and ABN AMRO - are in the top 25 Eurostoxx 600 performers," they say.

A few factors are behind the strength according to them, the first being the Eurozone's macro surprise index is in positive territory.

Further helping matters is the reduced fear of lower ECB rates while a strong earnings season is also a boon.

Another factor is the re-rating of the European market generally, with lenders trading on a 38% P/E discount to the market, meaning scope for further gains.

"Still, the sector rally leaves a reduced margin of safety than before and greater risks of retracement if negative news emerges."

To exemplify this they point to last week's declines in banks stocks following news of a French confidence vote, and later moves after news of potentially higher taxes on UK banks profits.

"We think both are over-reactions but the price action underlines good reasons to make the most of meetings with bank management in the near term," write the UBS analysts.

(Lucy Raitano)

FOR TUESDAY'S OTHER LIVE MARKETS POSTS:

NESTLE, REAL ESTATE SHARES DRAG STOXX DOWN AS BONDS TUMBLE CLICK HERE

NESTLE IN STICKY SITUATION, MUCH LIKE EURO ZONE INFLATION CLICK HERE

EUROPEAN FUTURES LITTLE CHANGED AHEAD OF EURO ZONE INFLATION CLICK HERE