Upcoming stress tests in Europe are just one more reason not to hold banking stocks at the moment, according to James Chappell, a financial sector strategist at Olivetree Securities.
“In the last three weeks Goldman Sachs earning estimates have been revised down by 35 percent and people are very uncertain about the sector given the stress tests and risks surrounding financial regulation,” Chappell told CNBC Wednesday.
The problem at the moment is that you can hold a stock in the banking sector and then wake up in the morning to see some piece of news push the price 10 percent lower, Chappell said..
“Before there can be certainty in the sector we need three things: confirmation of second-quarter earnings, certainty on what the European stress tests will mean and certainty on financial regulation," he added.
Between 5 and 15 percent is being priced out of some banks' profit estimates on financial regulation and Basel III remains a worry, according to Chappell.
Asked whether governments would recognize that banks remain the only way to effectively get money to the people that need it Chappell was skeptical.
“Look at the UK where there is lots of talk enforcing lending levels," he said. "This is difficult for the banks who are also being threatened with higher capital controls. The banking industry in Europe also needs to roll over €200 billion in the second half.”
“This is hindering the wider market and in the low-growth environment I expect over the next few years only the banks that can deliver above trend growth will do well," Chappell added.