In this piece, we will take a look at the 10 Best European Bank Stocks to Buy According to Analysts.
Strong earnings, record shareholder returns and resilience amid falling interest rates were the catalysts behind European bank stocks delivering their best year in over a decade. On average, the stocks were up by more than 32% as they benefited from a high interest rate environment as the European central bank sought to keep inflation in check in 2024.
Due to their emphasis on fee-based income and wealth management services, major European banks have managed to stay profitable. Additionally, Eurozone banks came into 2024 with stronger balance sheets, lower non-performing loan ratios, and larger capital buffers thanks to strict regulatory reforms put in place following the 2008 financial crisis.
Interest rate cuts as the year came to a close did little to dent investor sentiments on the European bank’s outlook, as depicted by the Euro Stoxx Bank index rising to its highest level since 2010. While loan growth slowed due to the high interest rate environment, effective risk management did more than enough to offset the losses.
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The Stoxx 600 Europe Banks Index is predicted to see average price returns of over 8% in 2025, continuing the upward trend. Analysts claim that more value may be unlocked and that European banking stocks are still inexpensive when compared to their US counterparts. A favourable outlook for banking stocks is making now a good time for European governments and buyout companies to sell their holdings.
“We expect the unwind of public stakes at some European listed banks to continue at an uneven pace this year,” said Roberto Scholes, head of strategy at wealth manager Singular Bank. The moves would ” positively impact share prices as potential public interference dissipates.”
Likewise, President Donald Trump’s winning the hotly contested election is emerging as another factor that could continue pushing European bank stocks higher in 2025. That’s in part because the new administration has affirmed its commitment to deregulation tax cuts and fiscal stimulus expected to fuel deals and activities in the sector.
Deregulation is expected to spur banking deals in 2025 after topping highs of $41.5 billion in 2024. “We would expect 2025 to be another strong year for M&A as management teams have surplus cash burning a hole in their pockets and buybacks are becoming less accretive,” said Nick Brand, a fund manager at Polar Capital Global Financial Trust.
Similarly, investors have been drawn to Europe’s beat-down valuations across industries, with stock prices in the region trading at a record 40% discount to their US counterparts based on forward earnings multiples. There are indications that European M&A may continue to pick up in 2025 as buyout companies seek to deploy record quantities of unspent capital.
While there have been fears that banks would come under pressure as central banks in the region cut the benchmark interest rates, the sector appears to be more than prepared. A lower interest rate environment is expected to fuel deal-making expected to maintain the positive earnings momentum. Similarly, European bank balance sheets are more than equipped for the test. According to Bloomberg Intelligence, the sector median CET1 ratio, which measures capital levels, is at the highest level it has ever been since 2011, at 14.9%.
“Now that balance sheets are stronger and the product factories have been strengthened, European banks are now reconsidering larger deals,” JPMorgan Chase & Co. analyst Kian Abouhossein wrote in a note. “This renewed focus is positive for banks with discounted valuations that could become targets.” Stronger balance sheets and improved capital buffers are some of the factors that should allow the best European bank stocks to continue outperforming amid falling interest rates in 2025.
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Our Methodology
To compile our list of the 10 best European bank stocks to buy according to analysts, we first made a list of all European banks and asset managers that trade on the NASDAQ and NYSE stock exchanges using stock screeners. We examined the banks, focusing on why they stand out as long-term investment plays. Finally, they were ranked based on Wall Street analysts’ upside potential.
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10 Best European Bank Stocks to Buy According to Analysts
10. HSBC Holdings plc (NYSE:HSBC)
Number of Hedge Fund Holders: 14
Stock Upside Potential as of January 24: 1.15%
HSBC Holdings plc (NYSE:HSBC) provides banking and financial services through Wealth and Personal Banking, Commercial Banking, and Global Banking and Markets segments. It stands out as one of the best European banks to buy owing to its track record in returning value through buybacks and dividends. The bank has returned over $34 billion to shareholders over the past two years.
After announcing a 9.9% surge in third-quarter profit to $8.48 billion, HSBC Holdings plc (NYSE:HSBC) confirmed a $3 billion share repurchase program. The buyback program aligns with the bank’s long-term plan to deliver enhanced shareholder value while maintaining a solid capital structure. The $3 billion buyback program comes from the bank, delivering solid financial results characterized by revenue growth and solid performance in the wealth and wholesale transaction units.
In 2025, HSBC Holdings plc (NYSE:HSBC) also intends to simplify its geographic governance and restructure its organization into four business lines. Additionally, the business has reaffirmed its goal of a return on tangible equity in the mid-teens. These latest events demonstrate HSBC’s dedication to expansion and reorganization.
As of January 24th, HSBC had an upside potential of 1.15%. Despite the modest average upside, the highest target suggests significant growth. The stock is rated as a Strong Buy by several analysts. Over the past year, 5 Wall Street analysts have rated HSBC, resulting in a consensus “Buy” rating: 1 hold, 3 buys, and 1 strong buy.
9. Lloyds Banking Group plc (NYSE:LYG)
Number of Hedge Fund Holders: 10
Stock Upside Potential as of January 24: 7%
Lloyds Banking Group plc (NYSE:LYG) provides a range of banking and financial services. It operates in three segments: retail, commercial banking, insurance, pensions, and investments. While Lloyds underperformed the overall banking sector in 2024, rallying by just 14%, it remains one of the best European bank stocks to buy, according to analysts.
The underperformance was mostly attributed to the company setting aside £450 million to cover potential refunds and penalties owing to its exposure to the mis-selling scandal facing car finance providers. Amid the scandal, Lloyds Banking Group plc (NYSE:LYG) continues to fire on all angles, going by solid third-quarter results on which pretax profits surged to £1.8 billion, beating analyst estimates of £1.6 billion.
Lloyds gains from higher net interest margins since the Bank of England is anticipated to keep interest rates higher throughout 2025 to fight inflation. Barclays analysts predict that if interest rates stay above 5% for the majority of the year, the bank’s profits could increase by an extra 5%.
Lloyds Banking Group plc (NYSE:LYG) is still making significant investments in digital banking projects to improve customer satisfaction and cut expenses. By the second half of 2025, these investments, according to JP Morgan analysts, could greatly raise the bank’s efficiency ratios, acting as a medium-term share price catalyst.