JP Morgan says 'buy' Credit Suisse, avoid UK banks

(Sharecast News) - JP Morgan upgraded Credit Suisse to 'overweight' as part of a "barbell" approach to the European banks that excludes UK lenders.

Analyst Kian Abouhossein said European banks had potential for a 15% rerating in the first half of 2021 despite 25% outperformance since he turned positive on the sector in October.

He argued for asset gathering and investment banking-focused non-euro, non-UK exposure through UBS, Credit Suisse and Julius Baer and low price-to-book value lenders BNP Paribas, Societe Generale and ING.

The first group offers unrestricted dividends and the restart of share buybacks while the second group has low share prices to book value with book value safe, he said.

Abouhossein upgraded Credit Suisse from 'neutral' and raised his target price to 14 Swiss francs from 12.19 francs because of its weighting towards asset gathering, a less risky business mix for Swiss banks and a more benign regulator than the European Central Bank and the Bank of England. Assuming buybacks restart in 2021 the bank will have a dividend yield of 6%, Abouhossein said,

Abouhossein said he favoured US big banks over European lenders because they are better positioned for buybacks with large reserves built in 2020. JP Morgan has urged caution when investing in UK banks because of lingering restrictions on dividends imposed by the Bank of England.