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European investment banks' dividends at risk

European investment banks are unlikely to return to double-digit revenue growth “anytime soon” and their dividends are at risk due to tightening regulatory capital constraints, an analyst at ING said.

Analyst Alain Tchibozo also said he expects additional markdowns at the banks due to a combination of rising default rates, liquidity squeeze and possible hedging gains.

Tchibozo began coverage of Switzerland's largest bank UBS AG with a “sell” rating, and initiated its local rival Credit Suisse and Germany's Deutsche Bank with “hold” ratings.

Shares of UBS will see little recovery potential due to rising litigation risk, revenue growth deceleration and likely additional writedowns on the bank's exposure to collateralized debt obligations, the analyst said.

Deutsche Bank's focus on capital market would come under scrutiny if regulators were to require higher capital ratios for trading operations, Tchibozo wrote in an August summary note to clients. The option of a rights issue could soon come to the table, capping any re-rating potential, he said.

He, however, expects Credit Suisse's above-average capital ratios to make its earnings more resilient that its peers.

The analyst set a share price target of 13 Swiss francs on UBS, 55.5 Swiss francs on Credit Suisse and €55.5 on Deutsche Bank. (Reuters)