LONDON (ShareCast) - (ShareCast News) - The recent "remarkable" rise in long-end interest rates and swap rates constituted a remarkable improvement in banks´ operating environment, but the political and economic landscape continued to be uncertain, UBS said.
Analyst Jason Napier said he saw risks to consensus revenue estimates for 2017 and expressed caution regarding some of the views shared by investors at UBS´s European Conference held the week before.

In particular, he wasn´t so sure that more government spending in the States - if it happened - would be significantly inflationary, lead to the same in Europe or interest rate hikes from the European Central Bank.

Similarly, he expressed uncertainty about the implications for bank regulation after the US elections and the belief that the risks surrounding elections in the euro area were low.

Trading on 0.9 times its tangible net asset value, there wasn´t much to go for in terms of valuation in the European bank sector, unless earninig revisions turned positive or the market decided to pay up for bank exposure, the analyst said.

On a more positive note, he believed the rotation from bond proxy stocks was not yet finished and might continue. Interest rate volatility might also repeat in the fourth quarter, boosting investment banks´ revenues from Fixed Income, Commodities and Currencies.

Napier´s top picks were ING, Lloyds and SEB which, in his opinion, had all the ingredients necessary in the current backdrop marked by political and macroeconomic uncertainty: strong capital, good underlying returns and ability to defend margins in a 'lower-for-longer' world.

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