Bullish comments from the Qatari investment fund over the future of European banks show a return of confidence in the depressed sector and may herald the beginning of an era of buying opportunities, analysts told CNBC Monday.
The fund is planning to invest between $10 billion and $15 billion over the next two years in banks and prefers the European ones to their US counterparts, Qatar’s Prime Minister Sheikh Hamad bin Jassim al-Thani told Reuters.
"Let's face it, the banks are extremely depressed right now … the reality is that they can only really go up," Ralph Silva, research director from TowerGroup, told "European Power Lunch."
European banking stocks rallied Monday, with the UK's Alliance & Leister soaring 8.8 percent and Royal Bank of Scotland gaining over 5 percent. France's Credit Agricole and Germany's Commerzbank also jumped.
The sector has been heavily sold off since last summer, when subprime-related losses started to filter through to balance sheets.
The EuroStoxx Banking Index has lost a quarter of its value since the start of June, meaning that investors can obtain far more stocks for their capital now compared to six months ago, but fear of further falls has kept many on the sidelines.
Shaken but Not Stirred
One reason to expect upside in the European banks is their ability to manage writedowns reasonably, Simon Adamson, analyst from CreditSights, told CNBC.com.
"The market has underestimated the resilience of a lot of European banks … we had some large writedowons and impairment changes, most of the banks have been able to absorb them with relatively little damage," Adamson said.
But it's still too early to say the worst is over, Adamson warned, and 2008 is still going to be a very tough year for banking.
Writedowns have been rife in the recent reporting season for the likes of UBS, Barclays and Societe Generale, and this has amplified uncertainly about the banks' prospects.
Echoing the Qatari SWF's opinion, analysts said U.S. banks are still too laden with losses from the housing market collapse to be considered ready for investment.