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NII RISKS TILTED TO THE DOWNSIDE FOR EUROPEAN BANKS - JP MORGAN

Against a backdrop of expected ECB rate cuts and flagging economic growth in Europe, JPMorgan is moving to a more balanced view on European bank stocks from its previous constructive stance, with a focused on bottom-up stock picking.

In a 2025 sector outlook piece, analyst Kian Abouhossein said the risk to net interest income (NII) and economic growth is skewed to the downside, but highlighted banks' attractive valuations trading multiples of 7.3x P/E.

So what are his highest convictions on a single-stock level?

"In line with our preference for non-NII gearing, we highlight UBS/Barclays/DBK," says Abouhossein.

The trio also has exposure to U.S. markets through their investment banking divisions and wealth management, as well as cards business for UBS and Barclays, respectively.

The UK's Natwest and Italy's Intesa Sanpaolo also make JPM's high conviction list.

Overall, the biggest risk to JPM's view is a scenario in which 10% tariffs are imposed on the euro area exports to the United States.

Meanwhile, the three catalysts they are focused on in the next 12 months are the interest rate outlook, political changes in Germany and France, and regulatory changes, specifically the implementation of Basel 4 across Europe.

And longer term themes?

"More clarity on the capital outlook for UBS; M&A is back on the agenda with parties including UniCredit, Commerzbank, Banco BPM and Credit Agricole involved; Legal uncertainties around Motor Finance and UK Banks including Lloyds," writes Abouhossein.

He adds that the theme of so-called U.S. exceptionalism with the new presidency could drive an accelerated focus for a capital markets union and financing in Europe, which in the long-term could reduce the cost of equity for the sector.

(Lucy Raitano)

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EARLIER ON LIVE MARKETS:

RBC GETS CONSTRUCTIVE ON LUXURY CLICK HERE

ZURICH POPS, LUXURY IN DEMAND CLICK HERE

EUROPE BEFORE THE BELL: ALL QUIET AHEAD OF THE ECB CLICK HERE

ECB, SWISS SET TO CUT, BUT BY HOW MUCH? CLICK HERE