Merrill Lynch is recommending Royal Bank of Scotland, Deutsche Bank, Barclays and ABN Amro as key buys for investors. It is also positive about AIB, which carries an add rating. In a report on pan-European banks, the brokers say a combination of rate cuts is very beneficial to capital markets and the banks exposed to them. Merrill Lynch favours Deutsche Bank's prospects over the others because of its large exposure to major capital markets.

Royal Bank of Scotland is the fastest net profit growth bank in the UK and is attractively valued compared with other European banks.

Barclays, meanwhile, has the best Internet strategy in the UK and its management is cost-conscious and is also relatively cheap, while ABN Amro is being restructured with new growth opportunities being identified, according to Merrill Lynch.