Citi Reaffirms Bullish Stance on European Banks Following Overblown Sector Sell-Off

Citi reaffirms its overweight rating on European banks, upgrading Lloyds and Deutsche Bank while naming HSBC, NatWest, and SocGen as top sector picks for 2026.

By: AXL Media

Published: Apr 10, 2026, 9:07 AM EDT

Source: CNBC

Strategic Reassessment Amid Market Volatility

The European financial sector has faced significant pressure recently, fueled by geopolitical tensions in the Middle East and concerns regarding the rise of private credit. However, Citi analysts led by Andrew Coombs argued that the sell-off following these events was overblown. The brokerage noted that banks remain one of the few sectors still experiencing upward revisions to earnings per share (EPS) forecasts, with year-to-date upgrades averaging roughly 3%. This resilience is supported by the fact that 79% of banks reported fourth-quarter 2025 results that exceeded consensus expectations for profit before tax.

Regulatory and Competitive Landscape

Citi’s analysis suggests that the competitive threat from private credit—a growing concern among institutional investors—is likely exaggerated. The asset class currently represents less than 2% of total sector loans and between 3% and 6% of wholesale bank loans. Furthermore, the regulatory environment continues to favor traditional lenders as interest rate expectations shift. Following recent geopolitical developments, forward curves now anticipate two rate hikes from the European Central Bank (ECB) this year, a sharp reversal from previous expectations of zero hikes, providing a significant tailwind for net interest income (NII).

Strategic Rationale and Top Sector Picks

The brokerage highlighted HSBC, NatWest, and Societe Generale as its top picks, maintaining "buy" ratings on all three. Analysts pointed to superior revenue outlooks and better-than-anticipated cost guidance as primary drivers for these selections. Lloyds Banking Group was specifically upgraded from "neutral" to "buy" with a price target increase to 114p. Citi identified Lloyds as a primary beneficiary of higher reinvestment yields due to the long duration of its structural hedge, forecasting a 7% to 10% increase in its 2027–2028 EPS estimates.