Europe banks a lot 'attractive' after share slide

STOCKHOLM: European banks are attractive after concerns over potential sovereign debt defaults and the impact of austerity measures pushed their shares down more than is justified by the risks, Nomura Holdings said.

European bank shares have “significantly underperformed” US lenders so far this year and now trade on an average 2012 normalised price earnings ratio of 6.7 times compared with 9.1 times for US regional banks, Nomura analysts Jon Peace and Chintan Joshi in London wrote in a note to clients on Wednesday. Nomura reiterated its “bullish” view of European banks, saying they are “very attractive on a historical or prospective basis.”

Concerns over a potential default by Greece and any contagion in other debt-ridden nations such as Portugal and Spain have helped push the 52-company Bloomberg Europe Banks and Financial Services Index down 12% this year, led by southern European banks. Greece and Spain are among countries that have been forced to implement austerity measures to trim their budget deficits, which may threaten an economic recovery.



“We do not believe that regulation and the risk of potential sovereign defaults and the costs of austerity justify the current valuation,” Nomura said, adding that European banks’ funding issues are “manageable” and that the negative impact on gross domestic product in the euro region from austerity measures “will be more than offset by euro weakness.”

That said, “given comparative risks and valuations we continue to express a fundamental preference for northern European over southern European banks,” Nomura’s Peace and Joshi said.