Morgan Stanley has named Societe Generale as its top stock pick among European banks, seeing 35% upside for the French lender. The Wall Street bank said SocGen is well positioned to benefit from higher interest rates in Europe and expects shares of the company to rise to 35 euros ($37.5), from 25.5 euros currently. The investment bank’s analysts upgraded SocGen to an “overweight” rating and named it a top pick alongside ING Groep of the Netherlands and CaixaBank of Spain. GLE-FR .FCHI YTD line The analysts said European Central Bank (ECB) interest rates have likely peaked after aggressive hikes over the past year. However, bank earnings could be more resilient than the market expects, given interest rate hedging strategies, lower industry fees, and share buyback programs. “We believe ECB rates have likely now peaked, and the [Morgan Stanley] view is that rate cuts will follow starting in 2Q24,” said the analysts led by Alvaro Serrano in a note to clients on Sept. 5. Morgan Stanley forecasts a 13% average growth in European banks’ earnings per share plus dividends in 2024 and 2025. It said this is above broader market growth, with “manageable regulatory risk” to earnings. Specifically, the analysts see stable net interest income for banks in 2024. This is a key earnings metric based on the difference between deposit and lending rates. SocGen was highlighted as a top pick based on its global restructuring potential under a new CEO appointed last year. Morgan Stanley sees room for cost cuts from internal mergers underway. The French bank also stands to gain as the cost of its hedges declines, and deposit costs stabilize. This should boost net interest income from 2024, the analysts wrote. “We also see a turning tide in France, as loan re-pricing picks up, which will benefit Soc Gen most,” the analysts added. However, analysts at investment bank Berenberg are skeptical of SocGen management’s ability to drive the stock price up despite a rally in shares over the past three months in anticipation of the upcoming investor day on Sept. 18. “Yet, given the rising expectations, we believe it could prove challenging for the new business plan to positively surprise without a change in the bank’s strategic direction,” said Berenberg analyst Michael Christodoulou in a note to clients on Aug. 24. Christodoulou maintains a ‘hold’ rating on the stock with a 30 euros price target. —CNBC’s Michael Bloom contributed to this report.