Following last week's European Union stress testresults and news that Basel III liquidity ruleshave been watered down, one analyst said it could be time to get back into a number of European banking stocks.
“In the last days, we saw broadly reassuring stress tests, and a substantial Basel u-turn on some key capital and liquidity proposals," Arturo De Frias Marques, a research analyst at Evolution Securities, said in a research note. "This could be the turning point for many fund managers to finally consider rebuilding their bank positions."
De Frias said he is confident on the fundamentals for a number of banks and expects prospects to keep improving for a select few in the sector.
“Capital and funding, capital and funding, capital and funding. This mantra has been the main rationale behind most underweight positions in the European banks sector," he said.
“A substantial Basel u-turn greatly reduces future capital and funding needs," he said. "By softening its December 2009 proposals, the Committee on Banking Supervision will make it much easier for many banks to comply with the new capital and liquidity framework."
According to De Frias, investors should buy the following European banks: Spain’s Santander, Lloyds Banking Group RBS and Standard Chartered in the UK, BNP Paribas in France and BBVA in Spain.
But it is not a straight buy call on the sector. De Frias has sell ratings on UBS, Barclays and Unicredit.
