European banks are intensifying efforts to attract investors as the strong rally in bank stocks over the past two years begins to stall. Amid weakening momentum in the sector, several major lenders have moved to accelerate shareholder payouts and strengthen capital commitments.
Banks Rush to Boost Investor Confidence
Last week, BNP Paribas and Société Générale accelerated share buyback programmes worth a combined €2.15bn, returning cash to investors earlier than planned. BNP Paribas also raised its capital target, signaling a firmer balance sheet position.
Meanwhile, Deutsche Bank used its capital markets day to announce new financial targets. The German lender pledged:
- Higher shareholder returns
- Faster growth
- Lower operating costs
- Improved profitability by 2028
These announcements come as bank shares in Europe show increasing signs of cooling.
A Rally Losing Steam
The Euro Stoxx Banks index — which tracks top Eurozone lenders — has been flat over the past three months, following a surge of more than 60% from January to mid-August.
With interest rates now falling, banks face pressure on net interest margins, the key driver of profitability during the recent period of high rates.
Portfolio manager Ian Horn of Muzinich & Co said that while European bank credit was highly attractive in 2023–2024, much of that value has now “disappeared”, adding that US banks now look more appealing relative to their European peers.
Valuations Rise After Years of Disappointment
After struggling for years to convince markets they deserved valuations equal to their book value, major European lenders are now priced well above that benchmark:
- Banco Santander, Intesa Sanpaolo and UniCredit: valued at 1.3–1.5x book
- BBVA: around 1.8x book
However, some executives warn that expectations may be running ahead of reality.
Andrea Orcel, CEO of UniCredit, cautioned that 2026 will be tougher for EU banks, adding:
“Net interest income will be more brutal than people expect.”
Selective Optimism Among Investors
Analysts say they are becoming more selective after strong performance in the sector:
- Frank Wedekind of William Blair said he has shifted from an overweight position to a more narrow stock-driven approach, noting that “the air’s getting a bit thinner.”
Despite caution, many analysts remain broadly optimistic:
- Andrew Stimpson of KBW said the sector is entering a favorable environment with returning loan growth, supportive ECB rates, and a healthy yield curve.
- He added that asset quality risks appear limited due to years of weak loan expansion.
BNP’s Surprise Move Impresses Markets
BNP Paribas’s early buyback and commitment to lift its CET1 capital ratio to 13% ahead of schedule boosted its shares by 6% on Thursday.
This marked a positive turn for the bank, which has been one of Europe’s weaker performers in 2024 due to:
- Legal challenges linked to Sudanese refugee cases
- Domestic political uncertainty in France
Once the Eurozone’s most valuable bank by market capitalization, BNP has fallen behind Santander, BBVA, UniCredit and Intesa Sanpaolo.
Analyst Joseph Dickerson of Jefferies said BNP’s latest moves represent a “statement of strength” and could mark a turning point in market sentiment.
Mixed Reaction for Deutsche Bank
Deutsche Bank’s new targets failed to win over investors, with shares dropping:
- 3% on the day of the announcement
- 7% over the week
However, the German bank remains one of Europe’s strongest performers this year, with shares up 75% year-to-date.
