Goldman Sachs reshuffles EU bank ratings, backs UniCredit, Santander, Banco BPM

Investing.com -- Goldman Sachs reshuffled its ratings on several Southern European banks, lifting Banco BPM into its top picks while cutting Intesa Sanpaolo and raising CaixaBank. 

The brokerage said Italian and Iberian lenders stand out for profitability, capital strength and high shareholder returns.

“We have a constructive view on the Iberian and Italian banking sub-sector and believe these banks have the potential to continue outperforming their European peers,” Goldman analysts said.

“Our top picks are: Banco BPM, UCG and Santander, all Buy rated,” the brokerage said. 

Goldman initiated Banco BPM at Buy, citing its prospects for fee income growth of 5.8% annually between 2025 and 2027, the highest among covered banks, along with strong capital and cost discipline. 

The brokerage reiterated “buy” on UniCredit and Santander, saying UniCredit offers “sector-leading capital distribution” and Santander is “delivering on its turnaround story.”

At the same time, the bank downgraded Intesa Sanpaolo to Neutral from Buy after a 166% rally since 2022, saying “few re-rating catalysts” remain. 

CaixaBank was upgraded to Neutral from Sell on resilient profitability and a 17% return on tangible equity. BBVA was left unrated. 

Among smaller players, Bankinter and BCP were initiated at Neutral, while Unicaja was rated Sell due to its “absence of re-rating catalysts” and a persistently weaker return profile.

Across the sector, Goldman expects mid- to high-teen returns on tangible equity, supported by stable net interest income, improving loan volumes and fee income. 

Italian banks are forecast to post the highest returns, with Banco BPM and Intesa above 20% and UniCredit above 16% by 2027. Iberian banks are projected to deliver 15% to 18%, except for Unicaja at about 11%.

Strong capital positions underpin those returns. Goldman estimates Southern European banks generate about 260 basis points of organic capital annually, providing scope for payouts and acquisitions. 

“Italian banks have significantly increased payout ratios, with some pledging cash payouts of 80% or more,” the analysts said. 

Average shareholder yields are forecast at 9% to 10% a year in Italy and about 7% in Iberia between 2025 and 2027. In a blue-sky scenario, banks could return as much as 30% of market capitalization over three years.

Valuations remain supportive despite recent rallies, according to the report. The group trades at about 9.5 times 2026 earnings and 1.5 times tangible book value, with expected returns above 16%, compared with a sector average of 15%. 

Goldman noted that the cost of equity for the sub-sector remains elevated at about 10.5% but said it is trending down, “driving a further re-rating.”