Catenaa, Thursday, February 20, 2025 – European bank shares have been rallying for nine straight weeks with the Stoxx 600 Bank Index gaining by 18% so far in the year, adding to their best streak in 27 years.
The sector has been rallying for nine straight weeks and is by far the best performer in Europe this year, up 18.29%, and up 45.21% from a year ago.
Banks have sailed through the earnings season, proving that falling interest rates are not denting their business, S&P Global expects European banks to have some revenue erosion is likely as Net Interest Margins are set to slightly decline amid lower short-term rates.
But higher lending growth, effective hedging strategies and banks’ efforts to develop fee income should largely offset that.
Also, big share buyback programs by banks are adding to the momentum where banks have announced already Euro 27 billion worth of share buybacks this year after close to Euro 20 billion buybacks in 2024.
The banking sector entered the earnings season with high expectations after extending a rally that began in late 2020, and the benchmark Stoxx 600 Banks have more than tripled since then.
While some firms saw setbacks in results as costs rose alongside revenue, investors were quick to buy the dip. UniCredit SpA and Barclays Plc have already recovered from last week’s post-earnings drops.
According to a Bank of America Corp. fund manager survey published earlier this week, banks are now the largest overweight in Europe for the first time since July 2023, and the sector is still considered one of the most undervalued. More broadly, financials are expected to be among the best performers this year.
S&P Global expects an average return on common equity of around 9% in 2025 for rated banks, down modestly from 2024, as a greater-than-expected economic slowdown could pull returns deeper into single-digit
The banking rally has brought a major re-rating, meaning that the sector is not as cheap as it used to be.
The forward price-to-book ratio for the Stoxx 600 bank index was at 8.5% On Wednesday and is approaching the top of a 15-year range.
