Why investors are buying banks again

Bank shares are having a good day after a full house of good news over the last twenty four hours.

There are growing hopes the stress testing of European banks will show everyone's a winner and the International Monetary Fund has lifted its global growth forecast. There has also been a positive report on Greek spending and a very optimistic trading statement from regional US bank State Street, while one of the most respected global strategists thinks banks are now oversold.

All of this news has boosted the sector after recent pain. 

Shares in Lloyds were leading the FTSE 100 risers up 2.47p at 60.66p - still below their high of 68.17 p back at the end of April. The other banks were up 1.25-3.9%.

The outlook for banks is not as bad as prices suggest

Credit Suisse strategist Andrew Garthwaite has upgraded European banks to 'market weight' from 'underweight' saying the economic headwinds have abated and the European sovereign credit risk is overstated.

He has 'outperform' ratings on all five listed UK banks.

He said the domestic banks Lloyds, RBS and Barclays will benefit from margin growth, points out they have all already passed a UK stress test and have more cash than many set aside for a rainy day. 

And despite all these positives, shares in the trio are trading at a discount to their European peers, he said.

As for the Asia focussed banks, HSBC benefits from low debt and its focus on low loan to deposit ratios while Standard Chartered benefits from its exposure to emerging markets - and Garthwaite also believes both are cheap.

What do the European banks stress tests mean for UK banks?

Banks have been gaining ground since Wednesday afternoon on widespread belief that the European stress tests will not reveal any nasties or lead to any pressure on banks to raise more capital.