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European banks are on track to return close to 123 billion euros to shareholders for the second year in a row as lenders raise dividends above their pre-financial crisis peak and buybacks grow.
The biggest listed European and British banks are expected to announce 74.4 billion euros in dividends and 49 billion euros in buybacks when they report profits for 2024 in the coming weeks, according to estimates compiled by UBS.
The range of returns would exceed even the highest total received by investors in 2023, as executives seek to share large profits earned as interest rates rose rapidly and compensate shareholders for shortfalls in payouts during the Covid-19 pandemic.
The sharp rise in capital returns comes after a period in which many investors shunned the sector, which has suffered from low valuations, a decade of weak shareholder payouts after the 2008 financial crisis and the intervention of regulators in 2020 to block dividends and buybacks.
HSBCBNP Paribas and UniCredit should return the largest amounts to shareholders based on their results for 2024, according to UBS forecasts, distributing 19.3 billion euros, 11.6 billion euros and 8.8 billion euros, respectively.
The outlook for the European banking industry has improved considerably since central banks began raise interest rates in 2022after enduring a painful decade of low or negative rates. Bank profits rose because they passed on higher interest rates to borrowers much faster than to savers.
Shares of lenders in the eurozone are at their highest level in almost a decade. But investors wondered whether the big payouts could be sustained as central banks began cutting interest rates, something expected to put pressure on net interest income – the difference between what banks pay on deposits and what they earn on loans and other property.
Jérôme Legras, managing partner at Axiom Alternative Investments, which owns stakes in most of Europe’s biggest banks, said current yield levels are sustainable and that Axiom expects “a slight increase in total yield for 2025 compared to 2024.”
Cheaper deposits, borrowers remortgaging at higher interest rates and higher returns from fee-earning companies have improved the outlook, Legras added.
“Rates are indeed moving in the opposite direction, but we also see better prospects [net interest income] due to back book pricing changes, lower deposit costs and higher fees,” especially for banks with strong fee-earning businesses in wealth and asset management, he said.
Citigroup said it expects European lenders to announce 80 billion euros in dividends and 54 billion euros in buybacks during 2025.
However, valuations lag behind US peers and many European lenders are still trading at a discount to the book value of their assets.
“We think European banks are valued because of the earnings and payout declines that we just don’t see,” said Jason Napier, head of European finance at UBS’s investment bank.
“We forecast that lenders will deliver dividends and buybacks worth 10 per cent of market capitalization or more in each of the next three years: double that of the equity market as a whole,” Napier said.
There are also growing concerns that a looser US regulatory regime under President Donald Trump could make European banks less competitive, even in their home markets, by increasing valuation discounts.
Head of UniCredit Andrea Orcel, speaking at World Economic Forum in Davos on Tuesday, said: “At this point, the US is expected to be far ahead of Europe in terms of less regulation. And considering that American banks operate in Europe, this will put us at a competitive disadvantage.”
