Citi says banks in core Europe oversold

LONDON: Citigroup says it estimates potential losses of 98 billion euros for banks in Germany, France, Italy and Britain from losses in Greece and other highly-indebted peripheral countries.

It says in a report that losses for the "core" European banking system from Greece, Ireland and Portugal are expected to be 24 billion euros, with the remainder from Spain. It's estimated losses arise from direct sovereign debt exposures, customer loans exposures and higher funding costs.

"Greece is not the key issue for the core banking systems. It is contagion to Spain that is of most concern," Citi says.

Domestic banks in the euro zone peripherals face a potential loss of 172 billion euros, of which 92 billion euros is Spain-related.

Citi says the market is "overly bearish" on core European banks.

"At 7 percent stressed common equity Tier 1 ratio French banks appear to us to be 16 percent undervalued," it says.

"The German and Italian banks are undervalued by 15 percent and 5 percent respectively. And the UK banks are undervalued by 13 percent."

The broker upgrades French banks to "overweight" and German banks to "neutral". Its top picks are BNP Paribas, Credit Suisse, DnB NOR, HSBC and Standard Chartered,

Copyright Reuters, 2011