Even after Monday’s strong market rally, European bank shares are trading at just under eight times average two-year forward earnings forecasts, still a 20% discount to the five-year average of 9.2x and an average since 2006 of 8.6x.
Some of the big lenders in the UK, along with peers in Spain, Holland and France, are trading even bigger P/E discounts.
“This reflects uncertainty about their ability to generate earnings amid the COVID-19 crisis, and their ability to pay dividends on those earnings,” analysts at the Swiss bank said in a note to clients on Tuesday.
If a successful vaccine comes to market and leads to a normalisation of asset quality and to dividend payouts, the analysts said Lloyds had the biggest potential re-rating upside based on normalised P/E.
The Bank of England, along with other European regulators, will provide an update on their dividend bans in December.
“Even in the absence of a vaccine, we think the blanket ban will likely be dropped in 2021, albeit dividend payments could be delayed until mid-year so as be informed by stress tests,” the number crunchers said.
“With a successful vaccine, we think regulators will be more willing to allow banks to pay a normalised dividend