HSBC and NatWest among top picks as analysts argue fundamentals remain intact despite 9% sector decline
European bank stocks have fallen 9% since conflict broke out in the Gulf, underperforming the broader European market by 2%, but Citi argues the selloff is overdone and is maintaining its 'overweight' stance on the sector.
Its analysts say the decline primarily reflects positioning rather than fundamentals, with banks having been consensus long trades that inevitably suffer when investors reduce risk exposure.
The Citi team argues the direct impact of the conflict on European banks is limited, and that rising forward interest rates could actually trigger earnings upgrades rather than downgrades for some lenders.
Valuations have also returned to more attractive levels, with the implied cost of equity back near its long-run average, while elevated yields are seen as providing additional support for the sector.
HSBC Holdings PLC (LSE:HSBA) and NatWest Group PLC (LSE:NWG), both FTSE 100 lenders, feature among Citi's top picks alongside France's Société Générale.
The SX7P, the index tracking European bank shares, has now given back a substantial portion of its strong run heading into 2026, which Citi's analysts appear to view as an entry point rather than a warning sign.