FRANKFURT/PARIS/LONDON (dpa-AFX) - The Stoxx Europe 600 Banks index saw its Wednesday relief rally stall exactly at the correction trendline in place since early February. On Thursday, the index edged lower once again. The decline since the onset of the Iran conflict in late February has widened to nearly 4 percent. In mid-March, that figure had briefly exceeded 15 percent, fueled by economic concerns amid surging oil prices.

However, Citigroup analyst Andrew Coombs remains optimistic about the sector, noting it is one of the few where earnings forecasts continue to rise. He attributes this primarily to the revenue outlook, though in some instances, improved cost control is also a factor. Coombs' top picks are HSBC, NatWest, and Societe Generale.

He has also softened his stance on Deutsche Bank, upgrading the stock to "Neutral" and removing his sell recommendation. Shares of the Frankfurt-based lender managed to narrowly defend their recovery gains from Wednesday. Their decline since the start of the Iran conflict now stands at just over 9 percent.

Coombs also views the shift in interest rate expectations during the conflict as a positive catalyst. The market is now pricing in two rate hikes by the European Central Bank this year, which should bolster banks' net interest income. Furthermore, Artificial Intelligence could provide an additional tailwind through its impact on costs and productivity./ag/bek/jha/