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European banks are on track to return nearly €123 billion to shareholders for the second year in a row, as lenders raise dividends above pre-financial crisis peaks and buybacks rise.
The largest listed European and UK banks are expected to unveil €74.4 billion in profits and €49 billion from buybacks when they report 2024 earnings in the coming weeks, according to estimates compiled by UBS.
The payout will even surpass the large total delivered to investors in 2023, as executives seek to share bumper profits made as interest rates rise rapidly and compensate shareholders for shortfalls in payouts during the Covid-19 pandemic.
The increase in returns on capital comes after a period in which many investors shunned the sector, which has suffered from low valuations, a decade of poor shareholder payouts in the wake of the 2008 financial crisis, and regulators intervened in 2020 to block dividends and buybacks.
HSBCBNP Paribas and UniCredit are expected to return the largest amounts to shareholders on the back of their 2024 results, according to UBS forecasts, as they distributed €19.3 billion, €11.6 billion and €8.8 billion, respectively.
The outlook for Europe's banking industry has improved significantly since central banks started doing so Raising interest rates in 2022having endured a painful decade of low or negative interest rates. Bank profits rose as they passed on higher interest rates to borrowers much more quickly than to savers.
Eurozone banking stocks have reached their highest levels in nearly a decade. But investors have questioned whether the bumper payments can be sustained as central banks begin to cut interest rates, something that is expected to put pressure on net interest income – the difference between what banks pay on deposits and what they earn on loans and other assets.
Jerome Legrasse, managing partner at Axiom Alternative Investments, which owns shares in most major European banks, said the current level of yields is sustainable and that Axiom expects “a slight increase in total returns for 2025 compared to 2024.”
Cheap deposits and borrowers remortgaging at higher rates and higher returns from companies with fees have improved the outlook, Legrasse added.
“Interest rates are already moving in the other direction but we are also seeing a better outlook for (net interest income) due to repricing of reserve books, lower deposit costs and higher fees,” especially for banks with strong fee-generating businesses in wealth and assets. Management said.
Citigroup said they expect European lenders to declare 80 billion euros in dividends and 54 billion euros in buybacks during 2025.
However, valuations lag behind their U.S. peers, and many European lenders are still trading at a discount to the book value of their assets.
“We believe European banks are bearing the costs of declining profits and payouts, which we are not seeing,” said Jason Napier, head of European finance at UBS Investment Bank.
“We expect lenders to offer dividends and buybacks of 10 percent of market cap or more in each of the next three years: twice what the stock market as a whole is offering,” Napier said.
There are also growing concerns that a loosened US regulatory regime under President Donald Trump could make European banks less competitive, even in their home markets, widening the valuation discount.
UniCredit President Andrea Ursel speaks at World Economic Forum “Right now, the expectation is that the United States will be far ahead of Europe in terms of being less regulated,” he said in Davos on Tuesday. “Given that American banks operate in Europe, that will put us at a competitive disadvantage.”
