Bloomberg News

European Banks Upgraded by Goldman Sachs on ECB Money

March 02, 2012

European banking shares were upgraded by Goldman Sachs Group Inc. (GS) analysts, who said they anticipate a boost in liquidity and profit from the European Central Bank’s three-year loans.

The banking industry was raised to “overweight” from “neutral,” according to a Goldman note to clients dated March 1. Even after this year’s gain by shares of the region’s lenders, the stocks are still not expensive, analysts including Matthieu Walterspiler and Sharon Bell wrote.

“The LTRO funding has improved liquidity and effectively removed, over the medium term, the likelihood of a major bank failure in Europe,” according to the analysts, referring to the ECB’s Long-Term Refinancing Operation. It “will help sector pre-provision profits, while banks still trade at a reasonable multiple of book value.”

The Frankfurt-based ECB doled out 529.5 billion euros ($701 billion) to some 800 banks, surpassing economists’ median estimate of 470 billion euros in a Bloomberg News survey. Two rounds of three-year loans from the ECB, designed to avert a credit crunch, have eased concern that Europe’s banks would run out of cash or curb lending as the region’s sovereign-debt crisis drove up borrowing costs.

The Bloomberg Europe Banks (BEBANKS) and Financial Services Index rose 0.5 percent to 87.61 at 10:35 a.m. Frankfurt time. Commerzbank AG (CBK), Germany’s second-biggest lender, led gains with a 3.2 percent advance, followed by Barclays Plc (BARC), Monte dei Paschi di Siena SpA of Italy and BNP Paribas (BNP) SA of France.

Barclays, the U.K.’s third-largest lender by assets, took 8.2 billion euros of three-year loans from the ECB to provide “funding stability” for its units in Spain and Portugal, it said today.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net; Francesca Cinelli in Milan at fcinelli@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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