(Finance) – I Fundamentals of European banks remain strongwith higher interest rates for a longer period and good capital levels, despite one scenario in which uncertainty has increased due to French President Emmanuel Macron’s decision to go to early elections. Analysts are convinced of this Barclaysaccording to which four key elements must be considered.
The first is that uncertainty is high and has been introduced an element of political risk. In fact, there is no clarity on what the French Parliament will be like in a few weeks and on the policies that will be managed by the party in power (whatever it is). A key question for European banks is whether this political risk remains only local (i.e. limited to France) or could have wider ramifications.
The second key aspect is that the Current bank valuation levels already take into account a lot of bad newsleading analysts to think that the downside risk to the sector’s valuation will be limited from here on out and that the risk/reward balance will still be attractive.
Thirdly, at this stage Barclays does not see a significant impact on EPS for the sector. “Assessing the potential EPS risk for banks following the French elections is a difficult exercise, given the uncertainty over both the outcome and implementation of policy measures,” the research reads. “Based on initial surveys, our economists they believe the two most likely outcomes are (i) a deadlocked Parliament or (ii) a “cohabitation” between President Macron and a far-right government. Both scenarios are at risk of negative macroeconomic effects, which would have second-round effects order on the banks, but based on the RN manifesto, we are not aware of any measures directly targeting the banks specifically.”
Finally, i fundamentals remain solid for European banks. In Europe, banks have one of the best cumulative EPS growths among sectors over the period 2022-25 with +39% versus +13% at the European level (for all sectors).
After EPS growth of +29% in 2023, IBES consensus estimates call for an increase of 3-4% in each of the years 2024-25, meaning that bank earnings should grow slightly, from a level initially feared as unsustainable by operators market in a rate cut environment. Delayed rate cuts and higher long-term rates are favorable to rate-sensitive banks; this could lead to improvements in NII guidance in second quarter results for UK, Irish, Spanish and Italian banks. Heading into 2026, while rate-sensitive stocks are expected to see their NII decline, Barclays expects the sector’s revenue and earnings growth to be supported by “end-of-cycle NII” and diversified banks (primarily French, Benelux national banks and the United Kingdom). European banks also remain among the best sectors in terms of returns on capital for shareholders (and specifically share buybacks).
“We expect the average European bank analyzed by us to distribute a total of 31% of market capitalization over the next three years, through a mix of dividends and share buybacks – it is underlined – The strong profit generation and the large capital reserves lead us to believe that the sector’s return on capital is sustainable.”
Analysts believe sensibleas European bank fundamentals remain strong, own bank stocks, however, moving from selecting banks based on countries to selecting them based on themes that, in their opinion, will generate outperformance. The two key themes they want to look at are (1) positive earnings momentum heading into 2026 and (2) strong capital levels and returns, because beyond macroeconomic considerations, they continue to be key drivers of industry performance and They offer downside protection should market volatility continue. The favorite banks they remain Unicredit, BNP Paribas, Lloyds, Natwestto which they are added ING Group And Intesa Sanpaolo: all these banks have ratings Overweight.