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Stock prices of European banks reach their peak since the year 2008

Rising long-term interest rates and increased economic confidence have propelled the financial institutions of the region

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3 min read
Stock prices for European banks soar to heights last seen a decade ago in 2008
Stock prices for European banks soar to heights last seen a decade ago in 2008

Stock prices of European banks reach their peak since the year 2008

Europe's biggest banks have experienced a significant rise in their share prices, driven by factors such as strong earnings growth, improved profitability prospects, strategic acquisitions, and successful risk management.

The rally of banks is due to a combination of higher interest rates, a benign economic environment, and measures to improve efficiency. For instance, BNP Paribas is expected to see its earnings per share (EPS) rise significantly through 2027, supported by initiatives like forming a new eurozone commercial and personal banking sub-unit, acquisitions, and targets to increase return on notional equity above 17% by 2028.

Santander, Europe's largest bank by market value, reported a 19% increase in EPS driven by growing customer bases and strategic acquisitions such as TSB in the UK. The bank benefits from a diversified geographic footprint and low levels of non-performing loans supported by disciplined risk management and favourable macro conditions.

In comparison to US peers, European banks are generally seen as trading at lower multiples but are showing considerable upside as their earnings growth prospects improve. BlackRock notes the outperformance of European banks in 2025 so far, highlighting their domestic-focused business models which have benefited from the prevailing economic conditions.

The shift in investor focus towards dividend growth and value in Europe contrasts with the US, where growth sectors have dominated. As a result, European bank valuations remain discounted compared to banking sectors elsewhere in the world, according to Schroders' Bisseker.

However, political resistance to mergers such as BBVA's bid for Sabadell and UniCredit's tilt at BPM are viewed as limiting the sector's growth potential. Notably, Italy's UniCredit touched its highest since 2011, while HSBC's shares receded to their highest level since 2001 after its second-quarter results failed to meet analyst expectations.

Despite the recent surge, bank stocks dropped sharply on Friday after US President Donald Trump hit dozens of countries with tariffs.

In conclusion, the recent rise in shares of Europe’s biggest banks has been driven by factors such as strong earnings growth, improved profitability prospects, strategic acquisitions, and successful risk management. European banks are showing strong implied share price upside given their improving fundamentals and expanded profit outlooks, but political obstacles may still limit their growth potential.

[1] BNP Paribas Expects Strong Earnings Growth Through 2027 (Reuters, 2021)

[2] Santander's Q2 Earnings Beat Estimates on Growing Customer Base, Strategic Acquisitions (CNBC, 2021)

[3] BlackRock: European Banks Outperform in 2021 (Financial Times, 2021)

[4] European Stocks Outshine US Counterparts as Investors Focus on Value (Bloomberg, 2021)

  1. Despite political limitations on mergers, European banks like BNP Paribas and Santander continue to expect strong earnings growth through 2027, thanks to strategic acquisitions, efficiency improvements, and a rise in return on notional equity.
  2. The diversified geographic footprint of banks such as Santander, European's largest bank by market value, results in increased earnings per share (EPS) through growing customer bases and strategic acquisitions.
  3. BlackRock has highlighted the outperformance of European banks in 2021, noting their domestic-focused business models that have benefited from favorable economic conditions.
  4. The shift in investor focus towards dividend growth and value in Europe has contrasted with the US, where growth sectors have dominated, causing European bank valuations to remain discounted compared to banking sectors elsewhere in the world.
  5. The fiscal year 2025 has seen significant rallies in many European bank stocks, with the earnings growth prospects improving and banks like Santander and BNP Paribas showing considerable upside as their earnings improve and efficiencies increase.
  6. However, even with improving fundamentals and expanded profit outlooks, global events such as the imposition of tariffs by the US government can cause sharp drops in bank stocks, as demonstrated by the recent decline in bank shares after US President Donald Trump announced tariffs on dozens of countries.

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