Barclays PLC (LSE:BARC) and Standard Chartered PLC (LSE:STAN) are the preferred UK bank stocks in Europe for UBS, though analysts warned that the looming earnings season could see volatile share price moves.
European banks are forecast to enjoy a 20% total return over the next 12-18 months, they added, with sector shares offering room re-rate thanks to the support of dividends, buybacks and moderate earnings growth over the period.
Barclays is expected to deliver 6% upside to 2026 earnings forecasts, while Standard Chartered has been added to UBS’s 'top picks' list, replacing Santander as the Asia's focused lender's longer-term growth is only being reflected in an "ex-growth" earnings valuation multiple, and “greater near-term capital upside” as key factors behind the move.
Despite the positive medium-term outlook, UBS flagged near-term caution.
"This isn't the market in which missing [second-quarter] earnings is advisable," the analysts said, following a "narrative-heavy" rally so far in 2025 that has been driven largely by re-rating rather than earnings revisions.
Any earnings shortfall, especially in key non-interest income or impairment lines, could trigger volatility, as shown by Norway's DNB last week.
The broader environment for EPS upgrades has stabilised, the analysts said, with limited recent momentum outside of short-duration names.
Continued focus on asset quality and capital efficiency is expected heading into the second half of 2025.