In this piece, we will take a look at the seven best European bank stocks to invest in.
The global banking landscape is undergoing a profound transformation, driven by a confluence of factors including rising interest rates, technological advancements, and shifting regulatory requirements. According to the latest Global Banking Annual Review by McKinsey, the banking sector is witnessing a resurgence in profitability after a prolonged period of historically low interest rates. This period of rejuvenation has been bolstered by a favorable macroeconomic environment, which has helped boost net interest margins and, consequently, overall profits for financial institutions worldwide. However, this recovery comes amidst a backdrop of significant changes and challenges that require banks to adapt and evolve. European banks, in particular, are at the forefront of this transformation. The region’s financial institutions are not only navigating the broader shifts affecting the global banking sector but are also leveraging their unique strengths to adapt to a rapidly changing financial environment. The report “European Private Banking: Resilient Models for Uncertain Times” by Mckinsey sheds light on how European banks are strategically positioning themselves to thrive amid uncertainty. These banks are embracing advanced technologies, such as artificial intelligence and digital payment solutions, to enhance their operational efficiency and service offerings. By integrating these technologies, they are able to meet the evolving demands of customers and stay competitive in an increasingly digital world.
The resilience of European banks is evident in their strategic responses to regulatory and macroeconomic shifts. With regulatory scrutiny intensifying and new players entering the financial landscape, European institutions are adopting diverse strategies to maintain their competitive edge. This includes scaling their digital platforms, improving risk management frameworks, and adapting to changing economic conditions. The ability to balance traditional banking operations with innovative approaches is helping these banks navigate current challenges and position themselves for future growth. The recent increase in interest rates has had a significant impact on the banking sector, particularly in Europe. This rise has led to an improvement in profitability, making European bank stocks an attractive investment opportunity. As banks continue to adapt to the evolving economic environment, they are well-positioned to capitalize on new growth opportunities and deliver strong returns to investors. The strategic advancements being made by European financial institutions, combined with their ability to navigate regulatory and macroeconomic changes, underscore their potential for long-term success.
In a recent conversation at the Twenty-Eighth Annual European Financials Conference in Madrid, Kerstin af Jochnick, a member of the ECB’s Supervisory Board, and Chris Hallam from Goldman Sachs discussed the outlook for the European banking sector. They noted the sector’s increased resilience, attributed to higher capital levels, reduced legacy non-performing assets, and improved internal models. The ECB’s Supervisory Review and Evaluation Process (SREP) highlighted that banks have strong capital and liquidity positions, benefiting from higher profitability. This robustness was confirmed by last year’s stress tests and the ECB Financial Stability Review, which showed euro area banks as resilient despite a challenging macro-financial environment. However, while banks are in a strong position, they face future challenges. Economic slowdowns and high interest rates may lead to asset quality deterioration and affect profitability. Banks are advised to plan for adverse scenarios and manage risks, especially in sectors like consumer credit and commercial real estate, which have shown some vulnerabilities. The ECB emphasizes the need for banks to enhance risk management frameworks and address internal governance deficiencies.
Despite higher profitability, European banks’ valuations remain relatively low compared to international peers. This discrepancy is attributed to cyclical, structural, and regulatory factors, including market concerns about sustained profitability and regulatory levies. The ECB believes that tailored efforts are necessary to improve valuations, including adapting business models, completing the banking union, and addressing regulatory issues. Consolidation within the European banking sector has mainly been domestic, with limited cross-border mergers. The ECB supports increased cross-border mergers to enhance market integration but recognizes that legal and structural barriers, such as differing regulations and a lack of common deposit insurance, hinder progress. Regarding Basel III standards, the ECB stresses their importance for maintaining a robust banking system. The implementation of Basel III is on track to start in January 2025, and the ECB is involved in developing technical standards and guidelines. The ECB also advocates for improved resolution processes for failing banks and broader use of resolution tools to ensure financial stability. Efforts are being made to address vulnerabilities, such as those in the commercial real estate sector, which have shown lower-than-expected impacts on banks so far. Lastly, the ECB emphasizes the need for banks to better incorporate climate-related and environmental risks into their risk management frameworks. While the ECB does not dictate specific green lending policies, it insists that banks must manage these risks as they would any other material risk. For more detailed information, refer to the ECB’s discussions and publications on these topics.
Investing in European bank stocks offers a compelling opportunity for those looking to benefit from the sector’s recovery and transformation. The ongoing evolution of the banking industry, driven by technological innovation, regulatory adaptation, and strategic responses to macroeconomic shifts, presents a promising landscape for investors. As the sector continues to evolve, identifying and investing in leading European bank stocks provides a pathway to potentially substantial returns and long-term growth.
A middle-aged business executive entering the lobby of a modern regional bank.
Our Methodology
To compile a list of the best European bank stocks, we first made a list of all European banks and asset managers that trade on the NASDAQ and NYSE stock exchanges. Then, they were ranked by the number of hedge funds that had bought their shares during Q2 2024, and out of these, the top European bank stocks were chosen.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
07. Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA)
Number of Hedge Fund Holders: 11
At number seven on our list of seven best European bank stocks to invest in stands Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA). Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) presents a compelling investment opportunity due to its strong performance across multiple geographies and financial metrics. The company operates through several key segments, including Spain, the United States, Mexico, Turkey, South America, and the Rest of Eurasia, which enables it to leverage diverse market conditions. Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) recent earnings report highlights another quarter of record results, with net attributable profit reaching EUR 2,794 million, a 38% increase compared to the same quarter last year, and a 27% rise from the previous quarter. This has translated into a 28% quarter-over-quarter and 42% year-over-year growth in earnings per share.
Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) tangible book value per share plus dividends grew by 20% year-over-year, despite challenges such as interest rate fluctuations and the depreciation of the Mexican peso. The bank’s CET1 capital ratio stood at 12.75%, reflecting strong lending growth in its core markets, which has led to gains in market share. Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) return on tangible equity reached 20%, marking a significant milestone for the bank and positioning it as one of the most profitable in its sector.
The company’s revenue growth remains robust, with gross income increasing by 31% year-over-year in constant euros, driven by strong net interest income, fees, and commissions. Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) efficiency ratio improved to 39.3%, making it one of the most efficient European banks. Furthermore, the bank’s loan growth of 10.7% year-over-year, particularly in profitable segments like consumer credit and SMEs, bodes well for future profitability.
Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) strategic focus on digital customer acquisition and sustainability initiatives also positions it for long-term growth. The bank acquired 5.6 million new customers in the first half of 2024, with 67% through digital channels, and has channeled EUR 46 billion in sustainable business for the year. These factors, combined with the bank’s strong financial performance, suggest a positive outlook for Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) continued growth and profitability.
During Q2, 2024 the count of hedge funds holding positions in Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) grew to 11 from 10 in the prior quarter, as reported by Insider Monkey’s database encompassing 912 hedge funds. These holdings collectively amount to around $0.52 billion. Ken Fisher’s Fisher Asset Management emerged as the leading shareholder among these hedge funds during this timeframe.
06. NatWest Group plc (NYSE:NWG)
Number of Hedge Fund Holders: 11
NatWest Group plc (NYSE:NWG) delivered a mixed performance in Q2 2024, highlighted by robust income growth and strategic moves that position the bank for long-term value creation. Despite missing earnings expectations, with reported EPS of $0.35 compared to expectations of $18.68, the bank demonstrated strong operational progress. The first half of 2024 saw NatWest Group plc (NYSE:NWG) achieving significant milestones, including the acquisition of a mortgage portfolio from Metro Bank and continued organic growth, with over 200,000 new customers. The bank’s financial performance was solid, with income reaching £7 billion and operating profit before tax at £3 billion, translating to a return on tangible equity of 16.4%.
NatWest Group plc (NYSE:NWG) focus on disciplined growth, particularly in its Commercial & Institutional banking segment, was evident as lending grew by £3 billion, excluding government schemes. Additionally, the bank has provided £16 billion in climate and sustainable funding, aligning with its goal to reach £100 billion by the end of 2025. The bank’s capital management remains a strong point, with a CET1 ratio of 13.6%, bolstered by active management of risk-weighted assets. This financial strength enabled NatWest to announce an interim dividend of 6p, a 9% increase from last year, along with completing a £300 million on-market buyback.
Looking ahead, NatWest Group plc (NYSE:NWG) is targeting disciplined growth and enhanced shareholder returns. The bank is focused on striking a balance between volume and margin, while also simplifying operations to improve efficiency. With an expected return on tangible equity greater than 13% by 2026, NatWest is well-positioned to deliver on its commitments to shareholders while continuing to navigate the evolving economic landscape.
During Q2, 2024 the count of hedge funds holding positions in NatWest Group plc (NYSE:NWG) grew to 11 from 9 in the prior quarter, as reported by Insider Monkey’s database encompassing 912 hedge funds. These holdings collectively amount to around $0.01 billion. Israel Englander’s Millennium Management emerged as the leading shareholder among these hedge funds during this timeframe.