The year 2023 has brought forth a remarkable narrative for European banks, defying expectations and showcasing substantial growth despite navigating through challenges such as banking crises and economic uncertainties. These financial institutions have emerged as resilient players in the global financial landscape, with an impressive year-to-date performance that underscores their adaptability and potential for success. From navigating through turbulent times to seizing opportunities for growth, European banks have proven their mettle and continue to influence the dynamics of the banking sector on a broader scale.

European Banks Performance Overview

Factors Driving European Banks’ Success

Several key factors have contributed to the remarkable performance of European banks in 2023:

1. Earnings Momentum and Capital Return: European banks have undergone a significant transformation, surpassing the earnings momentum of their US counterparts after years of disappointment. Analysts’ earnings estimates have been upgraded, and around three-quarters of European banks have exceeded analysts’ pretax profit projections by approximately 13%. Furthermore, European banks are actively returning excess capital to shareholders, with stock buybacks playing a significant role in capital management.
2. Prudent Regulation and Stability: In contrast to the US, European regulators maintained a tighter grip on the banking sector post-2008. This approach has proven to be beneficial, as European banks weathered the storm more effectively during times of crisis. A critical differentiator is the lower bond holdings and more stable deposits of European banks, which provided a buffer against financial shocks.
3. Stronger Financial Position: European banks’ financial strength has been emphasized by experts and analysts at international conferences. Top European banks exhibit better levels of credit default swaps, reflecting lower perceived risk compared to their US counterparts. This is indicative of the robustness of European banks’ balance sheets.
4. Resilience to Economic Downturn: Stress tests conducted by the European Central Bank revealed that Europe’s banking sector could withstand a severe economic downturn without depleting its financial buffers. Even in an adverse scenario of a nearly 10% decline in economic output over three years, European banks would maintain sufficient capital to cover losses and more.

Top Performers and Their Strategies

Several standout performers within the European banking landscape have played a pivotal role in driving the sector’s overall success in 2023:

1. UniCredit: Led by CEO Andrea Orcel, UniCredit has undergone significant transformation, cutting costs and focusing on higher-performing segments. This strategy has resulted in substantial growth, aligning with the broader trend of regional lenders in Europe. The bank’s projected adjusted profit for 2023 underscores its premier status within Italy’s banking sector.
2. Banco Bilbao Vizcaya Argentaria (BBVA): BBVA’s exceptional financial performance in 2022 carried into 2023, marked by a surge in net profit and a proactive approach to capitalize on its success. The acquisition of new customers through digital platforms and a strong loan portfolio growth highlights BBVA’s resilience and growth potential.
3. HSBC Holdings: HSBC’s remarkable financial performance, including substantial net profit growth and strategic acquisitions, reflects its robust revenue growth across various segments. The bank’s ability to leverage interest rate influences and generate income from fees and trading activities has contributed to its strong YTD performance.

The year 2023 has demonstrated the strength and resilience of European banks in terms of impressive returns and swift recovery from crises. Key factors such as earnings momentum, prudent regulation, and robust financial positions have contributed to the sector’s success. Standout performers like UniCredit, BBVA, and HSBC further exemplify the potential for growth within the European banking landscape. As the year progresses, the ongoing performance of European banks will continue to shape investor sentiment and contribute to the evolution of the financial sector.

Investing in European banks with ETFs

The European banking sector is undergoing a significant transformation, unparalleled in recent times, leading to an increasing demand for investment opportunities within this dynamic landscape.

The Evolve European Banks Enhanced Yield ETF (EBNK) is a unique opportunity to be part of the European banking sector’s growth story. EBNK lets you access the potential of European banks with a diversified approach. To find out more about EBNK or other offerings from Evolve ETFs, visit our website or reach out to us.

 

Sources

1. https://www.bloomberg.com/opinion/articles/2023-02-16/finally-a-payday-for-european-bank-investors
2. https://www.cnn.com/2023/03/15/economy/european-bank-rules-svb/index.html
3. https://www.cnn.com/2023/03/19/business/credit-suisse-ubs-rescue/index.html
4. https://www.cnbc.com/2023/05/24/european-banks-are-stronger-than-their-us-rivals-analysts-say-heres-why.html
5. https://abcnews.go.com/Business/wireStory/europes-banks-survive-drastic-economic-downturn-stress-test-101774588

 

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