The US investment bank said it expects the improvement in earnings seen in the first quarter of this year not to prove a one-off, with some banks benefiting from a steeper interest rate yield curve.

The bank recommends investors to switch out of Société Générale – moving from taking an overweight to even-weight stance – and into Deutsche Bank (underweight to overweight), and also switching into Credit Suisse from UBS.

“Q2 and beyond is likely to be stronger than the market currently anticipates – due, in our view, to higher margins being more sustainable than the market fears, steep curves, decent activity levels, plausible healing trade in markets and decent cost control,” the firm said in a note.

“What’s more, we believe the big outflows in hedge fund assets are largely behind us, as are mutual fund outflows, and so investors are more prepared to re-risk to benefit from the better backdrop,” the note continued.

It added that while there is “massive overcapacity” in many economic sectors, this does not apply to the banking sector.