Nomura has retained its 'neutral' view on the UK bank sector, saying that domestic lenders 'scan weaker' than French and Swiss banks for total returns.

Last month's Anchor report by Nomura highlighted its long-term reason to be cautious on the UK domestic bank sector and favour the UK Asia-focused banks. It also highlighted tactical upside from an extension of the risk rally as the sector had broken out, and while there may be some more upside in the near term, it could be a good opportunity to sell.

"In the context of the risk rally we see the UK domestic banks as well positioned relative to Italian and Spanish banks, but we would prefer to own the French and Swiss banks, along with a defensive bias towards the UK Asian and Scandi banks."

Nomura said that French banks like Societe Generale and BNP Paribas and Swiss peers Credit Suisse and UBS are "better-geared" to re-rating potential, future dividend yield and tangible book value, than the UK domestic banks.

"While there is optimism around re-rating potential for the UK domestic banks, a lot of the outperformance has already occurred and retracement to recent highs gives more upside in French and Swiss stocks. We remain more circumspect on longer-term margin development and risk to normalised returns from regulation."

Analysts said that they prefer Barclays over Lloyds and RBS.

"Litigation and ring fencing risks are the main reason for our longer-term bearish view, but these are unlikely to impact the stock in the near term as optimism around investor day continues to build."

Nevetheless, they said that rallies should be seen as selling opportunities and they continue to prefer Asia-focused Standard Chartered and HSBC.

BC

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