Morgan Stanley sees an opportunity to buy European bank shares following their recent decline, arguing that the sell-off reflects deteriorating sentiment in government bond markets and profit-taking rather than a fundamental weakening of the sector.
In its latest report, whose findings were shared by Greek business outlet Newmoney, the investment bank said that it maintained a positive outlook for Greek lenders, highlighting their valuations, resilient profitability and strong capital positions despite renewed volatility in European bond markets.
Alpha Bank is among Morgan Stanley’s preferred mid-cap European banks, with an Overweight recommendation and a target price of €5.50, compared with €4.65 in the report’s valuation, implying potential upside of around 18 per cent.
Morgan Stanley also favours Piraeus Bank and Eurobank, assigning both an Overweight recommendation.
Piraeus Bank has a target price of €12.30, against a valuation of €10.65, representing potential upside of 15 per cent.
For Eurobank, the target price stands at €5.40, compared with €4.70, also indicating potential gains of 15 per cent.
The bank takes a more neutral position on the National Bank of Greece, with an Equal-weight recommendation and a target price of €19.30, implying potential upside of 13 per cent.
CrediaBank also receives an Equal-weight recommendation, with a reference price of €1.01 and a target price of €1.09, pointing to potential upside of approximately 8 per cent.
Greek banks continue to trade at attractive valuations, according to Morgan Stanley, with the sector valued at around 9.6 times estimated earnings for 2027 and 8.8 times projected earnings for 2028.
The sector’s return on tangible equity, a measure of how effectively banks generate profits from shareholders’ investments after excluding intangible assets, is expected to remain close to 17 per cent over the coming years.
The main risk identified in the report is the rise in government bond yields, which has unsettled European financial markets and placed pressure on bank shares.
The yield spread between Greek and German government bonds has widened by approximately 42 basis points since the end of June, reflecting the broader turmoil in European bond markets.
Morgan Stanley nevertheless considers the impact on bank capital manageable. In most cases, the effect on the Common Equity Tier 1 (CET1) capital ratio, a key measure of a bank’s financial strength, is estimated at less than five basis points.
The impact could be greater for some banks in Greece, Italy and Spain, although the report does not suggest that the broader pressure on capital levels undermines its positive view of the sector.
Morgan Stanley argues that the recent share price declines have largely been driven by negative investor sentiment, making the correction an opportunity to establish or increase positions in European banks.
Historical performance supports that assessment. Following comparable three-day declines of between 5 and 7 per cent in European bank shares, the sector delivered positive relative returns over the subsequent week in 79 per cent of cases.
The bank’s positive outlook is underpinned by resilient earnings, continued lending growth to businesses, higher interest rates and strong capital levels.
These factors are expected to support profitability despite short-term market volatility, while the recent share price correction has created more attractive entry points for investors.
However, Morgan Stanley identifies stabilisation in government bond markets as the key condition for a sustained recovery in bank shares, suggesting that developments in sovereign debt markets will remain central to the sector’s near-term performance.