Lloyds Banking Group PLC (LSE:LLOY) is 'top pick' for Citigroup as the market returned to a more positive stance on the sector after a hiatus in March and April.
Following this lull, the Citi team noted that there had been a return to consensus earnings per share upgrades for banks in May.
"This followed a strong set of 1Q22 results, with banks beating on revenues and revising NIM guidance higher, which reinforces our belief that earnings upgrades will continue to drive relative outperformance," Citi's banking analysts said.
Lenders' capital levels were cited as the "one weak point" in the sector's recent first-quarter results, but capital return plans were "largely reiterated or even enhanced".
Lloyds and UBS are two shares where Citi said it was most above consensus, with the pair being among its three favourites, alongside Spain's Caixabank.
Least preferred European banks are ABN, Deutsche Bank and SEB.