European banks have better than expected capital strength and cost control,but need earnings momentum to return to the sector if it is to outperform, ExaneBNP Paribas says.
Banks in Europe have so far reported on average a 43 percent contraction infourth quarter earnings, while revenues in the same period are down 3.8 percent,according to Thomson Reuters Starmine Data.
And over the last 30-days, analysts have cut their earnings forecasts forthe first-quarter by an average of 2.6 percent and for the full-year 2013 by 1.7percent, according to Starmine.
"This is slightly concerning, as we have often highlighted the fact thatgiven the material reduction in the cost of equity we need to see earningsrevisions to jusitfy a further uptick in banks' share prices," Exane says in anote.
Analysts at Exane remove Lloyds and Swedbank from theirtop picks list, although they retain a 'outperform' rating on the stocks. Lloydshas outpaced the market by 30 percent in the last 12 months, while Swedbank hasperformed 22 percent better than the market this year.
Following earnings season, Exane add Credit Agricole to its "toppicks" list, joining Barclays and Credit Suisse, andreplacing Societe Generale.
"The disappointing development of solvency, cost of liquidity and cost ofrisk in French SMEs in Q4 will weigh on shares, whereas [CreditAgricole] will exhibit significantly improved earnings predictability,surprising solvency and improved management credibility."
Reuters messaging rm://alistair.smout.thomsonreuters.com@reuters.net
Barclays (BARC)
Lloyds (LLOY)