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Investors have shunned banking stocks since the financial crisis broke out ten years ago. Signs are mounting that the sector is due for a recovery.

The development of the U.S. stock market is a belwether of where European stocks are likely to head. If prices are up in the U.S., they are prone to follow here too – as is currently the case with banking stocks.

The shares of J.P. Morgan, Citigroup and Bank of America advanced as much as 30 percent last year, boosted by expectations about deregulated financial markets, as promised by U.S. President Donald Trump and after the round of tax cuts decided at the end of the year.

Swiss View

From a Swiss perspective, last year was fine too – with investors of Credit Suisse looking back on an rise of 25 percent. Switzerland's second-largest bank outpaced its larger, hometown rival: UBS shares rose 11 percent by contrast.

Compared with the much higher valuations of years past, current prices may not look stellar. But now is the first time since 2008 when momentum hasn't fizzled: in other words, the rally is still in its infancy and is likely to continue for a while yet in Europe.

Potential in Europe

European banking shares still have substantial potential compared with their U.S. rivals, because they were later in adjusting their business to the new rules about capital requirements.

They also emerge from a period when new European rules – Mifid II – are done and dealt with, the automatic exchange of information has come into force and several scandals including tax avoidance and rigging have finally been settled.

Costs Under Control

This will help financial firms keep costs under control. Similarly, there’s improvement in the earnings outlook, with a moderate increase in interest rates set to boost interest income.