3) Dare To Pick European Banks?
If you have the stomach for European bank stocks, consider Deutsche Bank's analysis of the long term financing move by the European Central Bank.
Like most economists, Deutsche bank analysts note that the liquidity risk for European banks has greatly decreased as they can now borrow money at 1% for three years. The firm estimates that the ECB's move addresses liquidity risk for the next year or two.
However, the firm warns that investors should be careful in trying to reap the benefits of the long term refinancing operation (LTRO). "Though incrementally helpful to earnings per share... we believe that the sector benefits of LTRO are priced, and that stock picking is now most important," it writes.That means the actual LTRO allotment on Feb 29 is "no longer a significant catalyst." Analysts disagree on the net take up for the Feb. 29 LTRO. However, Deutsche Bank says the specific number is "irrelevant." "The 'LTRO-is-good' thought process has played out in the stocks and [we] don't see this as a further catalyst," it adds. As for actual stocks, the firms feel best about Julies Baer, Swedbank and Barclays (BCS). These are top tier banks and retail names with better capital, it says. "Key downside risks relate to a deterioration in sovereign and bank funding markets, a downturn in capital market revenues, and impact on credit quality from weaker economic conditions." Like many bank stocks, Barclays has surged this year. The stock is up 33% year to date after losing a third of its market cap last year. Shares were last trading near $14.59.
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