Prime Highlights:
- European banks had a very strong 2025 and are preparing for another good year in 2026.
- Banks are exploring growth options, including share buybacks, dividends, and mergers and acquisitions.
Key Facts:
- The Stoxx 600 Banks Index rose nearly 60% this year, showing strong investor confidence.
- Major banks like HSBC, UBS, Monte dei Paschi, and Barclays are expected to be active in growth and M&A opportunities.
Background:
Europe’s banks did very well in 2025 and look set for another good year in 2026. Experts say this could be their best performance since 1997. The Stoxx 600 Banks Index has gone up nearly 60% this year, showing strong market confidence.
HSBC, UBS, and several other lenders posted third-quarter earnings that exceeded expectations, while banks such as Commerzbank and Société Générale saw their valuations more than double over the past year. According to Benjamin Goy, head of European financial research at Deutsche Bank, “European banks are well-capitalized, with most holding significant excess capital.” The question now for management is how best to deploy these funds in 2026.
Banks can use their extra capital in different ways, such as share buybacks, paying dividends, or pursuing mergers and acquisitions. Analysts expect most activity in Italy and the UK to be domestic “bolt-on” deals, which are easier to execute and provide strong benefits. Banks expected to be active include Monte dei Paschi, Erste Group, Bank of Ireland, and Barclays.
European banks are likely to keep growing, helped by interest income, fees from financial markets, and more loans and deposits. Experts say global investors see European banks as a cheaper alternative to U.S. tech stocks.
With steady interest rates and continued economic growth, banks are in a good position to maintain profitability and take advantage of new opportunities in 2026.
