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European banks are on course to return close to €123bn to shareholders for the second consecutive year as lenders lift dividends above their pre-financial crisis peak and buybacks soar.
The largest listed European and UK banks are expected to unveil €74.4bn in dividends and €49bn of buybacks when they report 2024 earnings in the coming weeks, according to estimates compiled by UBS.
The scale of the returns would surpass even the blockbuster total handed to investors in 2023, as executives seek to share bumper profits earned as interest rates rose rapidly and to compensate shareholders for a lack of payouts during the Covid-19 pandemic.
The surge in capital returns comes after a period in which many investors shunned the sector, which suffered from depressed valuations, a decade of meagre shareholder payouts following the 2008 financial crisis, and intervention by regulators in 2020 to block dividends and buybacks.
HSBC, BNP Paribas and UniCredit are expected to return the largest amounts to shareholders on the back of their 2024 results, according to UBS’s forecasts, distributing €19.3bn, €11.6bn and €8.8bn, respectively.
The outlook for Europe’s banking industry has improved markedly since central banks began to raise interest rates in 2022, having endured a painful decade of low or negative rates. Banks’ profits surged as they passed higher interest rates on to borrowers far more quickly than to savers.
Shares in Eurozone lenders are at their highest level in almost a decade. But investors had questioned whether bumper payouts could be sustained as central banks have started 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 from loans and other assets.
Jérôme Legras, managing partner at Axiom Alternative Investments, which owns shares in most of Europe’s largest banks, said that the current level of returns was sustainable and that Axiom expected a “slight increase in total yield for 2025 compared to 2024”.
Cheaper deposits, borrowers remortgaging at higher rates and higher returns from fee-earning businesses improved the outlook, Legras added.
“Rates are indeed moving the other way but we also see a better outlook on [net interest income] due to repricing of the back book, lower deposit costs and higher fees,” particularly for banks with strong fee-earning businesses in wealth and asset management, he said.
Citigroup said they expect European lenders to announce €80bn of dividends and €54bn in buybacks during 2025.
However, valuations trail US peers and many European lenders still trade at discounts to the book value of their assets.
“We think European banks are priced for a downturn in earnings and payouts which we just don’t see,” said Jason Napier, head of European financials at UBS’s investment bank.
“We forecast lenders delivering dividends and buybacks worth 10 per cent of market capitalisation 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 lighter-touch US regulatory regime under President Donald Trump could make European banks less competitive, even in their home markets, widening the valuation discount.
UniCredit chief Andrea Orcel, speaking at the World Economic Forum in Davos on Tuesday, said: “At the moment, the expectation is that the US will be well ahead of Europe in terms of being less regulated. And given that US banks do operate in Europe that will put us at a competitive disadvantage.”
