Back to Insights

Why European Banks Were the Standout Winners of 2025

February 23, 2026

European banks wrapped up 2025 with a headline that’s easy to overuse: “another great year.” But when it’s backed by numbers like those from 2025, it’s hard to describe the performance of European banks any other way.

For years after the financial crisis and Great Recession, a lot of investors treated European banks as a value trap: cheap for reasons that never really went away. In 2025, however, that attitude shifted. Banks didn’t just participate in Europe’s market rally, they helped lead it, drawing attention back to the sector.

By mid-November, the Stoxx Europe 600 banking sub-index was up 57% year-over-year, according to the Wall Street Journal, helping push the broader European market to record highs.¹ By year-end, Reuters reported that European shares had posted their strongest year since 2021, with banks doing much of the heavy lifting.²

STOXX, which runs several widely followed European indices, said the EURO STOXX Banks and STOXX Europe 600 Banks indices rose 80.3% and 67% respectively in 2025—its best year for the sector since 1987.³ While European banking sector remains below its pre-crisis levels, their performance in 2025 shows how quickly investors can change their minds when they sense there is value to be had, even in developed markets.

So why did European financials have such a good year? And how can North American investors take advantage of that to complement their exposure on this side of the Atlantic and to help diversify their portfolios?

What fuelled European bank stocks in 2025?

So what actually powered European banks’ performance in 2025? It came down to overall profitability, buybacks and dividends, and modernized cost controls, especially thanks to the use of Artificial Intelligence (“AI”).

To begin with, European banks looked healthier than many people assumed. In its Financial Stability Review from November 2025, the European Central Bank described euro-area banks as profitable and well-capitalised, with return on equity of 9.8% in the in the second quarter of 2025 and capital and liquidity buffers above requirements.⁴ This shows that despite headwinds from U.S. trade and tariff uncertainty, this rally was built on solid balance sheets and durable profits.

Likewise, investors benefitted from how much cash banks were willing and able to hand back to shareholders in 2025. In November, for example, Reuters reported that French bank BNP Paribas received regulatory approval for a €1.15 billion share buyback and raised its core capital buffer (CET1) capital target to 13% by 2027, signalling that it wants to keep a strong buffer while still returning capital.⁵ Similarly, Spanish bank Banco Santander announced in a press release a combination of cash dividends and share buybacks of roughly €3.4 billion, which is approximately 50% of Banco Santander’s profits from the first half of 2025.⁶

And finally, investors benefitted from the growing use of AI as a practical way for European banks to cut costs and improve processes. Analysts such as Helen Jewell, chief investment officer for fundamental equities at BlackRock, increasingly see banks as potential “cost winners” from AI because the technology can streamline routine operations, improving fraud detection, and lower staffing and processing costs.⁷ This sentiment is echoed more broadly by McKinsey, who in its latest report on the value of GenAI to the banking sector suggested that AI could add $200 billion to $340 billion in value annually to global banking, primarily through gains in productivity.⁸

Why Consider European Financials Alongside North American Banks

For investors, holding European financials alongside North American banks is about broadening exposure to different economic, regulatory, and earnings cycles. European banks operate in a distinct policy environment shaped by the European Central Bank and under different capital rules than financial institutions in the U.S. or Canada. That means their profitability and balance-sheet dynamics do not always move in lockstep with North American banks.

There is also cycle-diversification to consider. In 2025, European banks benefited from improving profitability and capital returns at a time when North American banks were dealing with more mature credit cycles and tighter regulatory scrutiny.⁹ Holding exposure to institutions influenced by different macro pressures—rates, loan growth, fiscal policy, and regulation—can help reduce reliance on any single regional outcome.

Valuation and capital-return profiles can differ as well. Even after a strong year, many European banks continue to trade at lower multiples than large North American banks, according to Bloomberg, reflecting lingering investor caution.10 At the same time, the return of sizeable dividends and buybacks has made the sector more visible to global investors who previously overlooked it. For some investors, that combination of lower starting valuations and renewed capital discipline is part of the appeal.

Finally, European financials add structural diversification. The region’s banks tend to have different business mixes, with greater exposure to cross-border lending, trade finance, and bank-based business models.11 As European institutions adopt new technologies and cost controls—mirroring trends already underway in North America—the gap between how investors perceive European and North American banks has begun to narrow. For portfolios already heavily weighted toward U.S. or Canadian financials, European banks represent a way to spread regional risk rather than concentrate it.

Give Your Portfolio Some European Flair with EBNK ETF

 Are you looking to diversify your banking holdings beyond North America?

The Evolve European Banks Enhanced Yield ETF (EBNK) is an index-based ETF that invests in equity securities of the largest European banks on an equally-weighted basis, with the added value of a covered call strategy applied on up to 33% of the portfolio. Covered call options have the potential to provide extra income and help hedge long stock positions.

For more information on EBNK ETF, visit our website at https://evolveetfs.com/ebnk/.

 

ENDNOTES

  1. Wallace, J., “Banks Power European Stocks to Record Highs,” The Wall Street Journal, November 12, 2025; https://www.wsj.com/livecoverage/stock-market-today-dow-sp-500-nasdaq-11-12-2025/card/banks-power-european-stocks-to-record-highs-ybRc3ITDKYE3WcQXfZTM
  2. Mathur, R. & Kashyap, P., “European stocks end near record levels, cap strongest annual run since 2021,” Reuters, December 31, 2025; https://www.reuters.com/markets/europe/european-shares-set-best-year-since-2021-2025-12-31/
  3. “European bank stocks have record year, lifting sector STOXX ETF assets above EUR 13bn,” STOXX, January 14, 2026; https://stoxx.com/european-bank-stocks-have-record-year-lifting-sector-stoxx-etf-assets-above-eur-13bn
  4. “Financial Stability Review, November 2025”, European Central Bank, November 2025; https://www.ecb.europa.eu/press/financial-stability-publications/fsr/pdf/ecb.fsr202511~263b5810d4.en.pdf
  5. Rhodes, D. & Rosemain, M., “BNP Paribas lifts core capital goal amid investor concerns,” Reuters, November 20, 2025; https://www.reuters.com/business/finance/bnp-paribas-raises-cet1-ratio-target-13-by-2027-2025-11-20/
  6. “Santander increases 2025 interim cash dividend by 15% to 11.5 euro cents per share,” Santander, September 30, 2025; https://www.santander.com/en/press-room/press-releases/2025/09/santander-increases-2025-interim-cash-dividend-by-15-to-11-5-euro-cents-per-share
  7. Alves, J., “Old meets new economy: AI boom to supercharge European banks’ rally,” Reuters, December 15, 2025; https://www.reuters.com/business/finance/old-meets-new-economy-ai-boom-supercharge-european-banks-rally-2025-12-15/
  8. Kamalnath, V., Lerner, L., Moon, J., Sari, G., Sohoni, V. & Zhang, S., “Capturing the full value of generative AI in banking,” McKinsey & Company, December 5, 2023; https://www.mckinsey.com/industries/financial-services/our-insights/capturing-the-full-value-of-generative-ai-in-banking
  9. Mathur, R. & Kashyap, P., “European stocks end near record levels, cap strongest annual run since 2021,” Reuters, December 31, 2025; https://www.reuters.com/markets/europe/european-shares-set-best-year-since-2021-2025-12-31/
  10. Msika, M. & Munoz Montijano, M., “European Bank Stocks Still Hold Appeal After Record Winning Run,” Bloomberg, October 1, 2025; https://www.bloomberg.com/news/articles/2025-10-01/european-bank-stocks-still-hold-appeal-after-record-winning-run
  11. Beck, T., Bruno, B. & Carletti, E., “How have European banks developed along different dimensions of international competitiveness?,” Economic Governance and EMU Scrutiny Unit, European Parliament, May 2, 2025; https://www.europarl.europa.eu/RegData/etudes/IDAN/2025/764383/ECTI_IDA(2025)764383_EN.pdf

 

Source: GettyImages Credit: nevarpp

Disclaimers:

Published February 23, 2026

Evolve Funds Group Inc. is the investment fund manager and portfolio manager. Evolve European Banks Enhanced Yield ETF (“EBNK”) is offered by Evolve Funds Group Inc., and distributed through authorized dealers.

The information contained herein is a general description and is not intended to be specific investment advice to any particular investor nor intended to be investment or tax advice. You should not act or rely on the information contained herein without seeking the advice of an appropriate professional advisor. The information contained herein is intended for informational purposes as a summary only, does not constitute an offer to sell any securities or a legally binding obligation, it is qualified entirely by, and should be read in conjunction with, the more detailed information appearing in the prospectuses found on the Evolve Funds Group Inc website at https://evolveetfs.com/

Commissions, trailing commissions, management fees and expenses all may be associated with exchange traded funds (ETFs) and mutual funds. Please read the prospectus before investing. ETFs and mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements contained herein are forward-looking. Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS. FLS are not guarantees of future performance and are by their nature based on numerous assumptions. Although the FLS contained herein are based upon what Evolve Funds Group Inc. and the portfolio manager believe to be reasonable assumptions, neither Evolve Funds Group Inc. nor the portfolio manager can assure that actual results will be consistent with these FLS. The reader is cautioned to consider the FLS carefully and not to place undue reliance on FLS. Unless required by applicable law, it is not undertaken, and specifically disclaimed that there is any intention or obligation to update or revise FLS, whether as a result of new information, future events or otherwise.

Certain information contained in this document is obtained from third parties. Evolve Funds Group Inc. believes such information to be accurate and reliable as of the date hereof, however, we cannot guarantee that it is accurate or complete or current at all times. The information provided is subject to change without notice.