Europe's bank stocks are set to face multiple headwinds after a seven-month, 170-percent surge on the back of government stimulus efforts, with defensive plays seen likely to profit most. As the macro-economic picture improves after the worst financial crisis since the Great Depression, governments and central banks could be closer to withdrawing stimulus aid -- a move that would hit financial stocks hard. Bank stocks could also face a wave of defaults on loans going into 2010, pressure from credit rating downgrades, greater regulatory scrutiny and the need for further fundraisings across the sector to help replenish capital. Top U.S. and European banks have lost over $1 trillion (627 billion pounds) on toxic assets and bad loans since the start of 2007, and losses from 2007-10 are expected to top $2.8 trillion, according to International Monetary Fund forecasts. France-based BNP Paribas recently announced a 4.3 billion euro (4 billion pounds) capital raising, while Royal Bank of Scotland has gauged investor appetite for a share issue of up to 4 billion pounds, and British peer Lloyds is rumoured to be planning a cash call of up to 20 billion pounds. "One has to be cautious now given the extent to which banks have rebounded. They are looking a bit expensive and I think adding more (to stock prices) is going to be difficult from here," said Mike Lenhoff, chief strategist at Brewin Dolphin in London. As a result of the headwinds, analysts say financials have low earnings visibility, making it harder to put a price-earnings multiple on the sector.