Time to Make a Deposit With European Banks

Sure, U.S. bank stocks had a dandy 2013. The Financial Select Sector SPDR (NYSEArca: XLF) confirms as much with its 2013 pop of 35.5%.

What got lost in all the attention paid to resurgent U.S. bank stocks is just how strong some European banking sectors performed. In fact the top four banking sectors in the world last year were Benelux, France, Italy and the Nordic region. All in Europe and part of the reason the iShares MSCI Europe Financials ETF (NasdaqGS: EUFN) gained 24.4% in 2013. [An ETF for Recovering European Bank Dividends]

European banks could continue building on 2013’s strong showing this year.

“For 2014, we remain overweight European banks, with the sector at an inflection point on capital, restructuring and the real economy, while the transition to ECB supervision should serve to reduce the sector risk premium,” Citigroup said in a research note posted by ValueWalk.

Although EUFN has a trailing 12-month yield of just 1.8%, that yield could rise this year and not because of falling share prices but because of rising dividends. In October, Markit said it sees substantial increases in dividends from French and Swiss banks. France and Switzerland combine for almost 24% of EUFN’s country weight.

Among the European banking names favored by Citigroup are Barclays (NYSE: BCS), BNP Paribas, Danske Bank and ING Groep, according to ValueWalk. BNP Paribas and Barclays are EUFN’s fourth- and seventh-largest holdings, respectively, combining for 7.4% of the ETF’s weight. ING Groep and Danske combine for 3.5% of the ETF’s weight.