Bank bulls in no rush to buy more

UBS forecast EPS growth of 13%, 15% and 10% in 2026-2028, supported by loan growth, policy rates and steeper yield curves, with positive revisions expected over the next couple of months.

Yet enthusiasm is not translating into fresh buying, despite investors largely sharing UBS's constructive outlook.

"We didn't sense a substantial desire to add to sector aggregate positions or to meaningfully revise the stocks which they hold in the near term," writes analyst Jason Napier.

The caution comes as markets grapple with geopolitical uncertainty, bond market swings and questions around the economic impact of artificial intelligence.

UBS believes that hesitation will prove temporary.

It argues that rising forecasts, higher assumed policy rates and the releveraging of the private sector should support stronger profits, more M&A and potentially higher valuations.

"This too shall pass (we think)" Napier says.

Even without a re-rating, UBS estimates the sector can deliver a 35% total return over the next two years.

European banks .SX7P are up 21%, on track for four consecutive positive years.

Investors remain firmly positive on European banks, but many look comfortable keeping existing overweight positions rather than adding exposure despite a favourable backdrop.

That is the key takeaway from UBS's latest investor meetings in the United States, which found broad agreement that European lenders remain attractive thanks to earnings growth, low valuations and improving industry conditions.