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.
05. ING Groep N.V. (NYSE:ING)
Number of Hedge Fund Holders: 12
ING Groep N.V. (NYSE:ING) engages in the provision of banking, investments, life and non-life insurance, and retirement and asset management services. The company was founded on March 4, 1991 and is based in Amsterdam, the Netherlands. ING Groep N.V. (NYSE:ING) continues to demonstrate resilience and strategic growth, making it an attractive investment in the European banking sector. Despite facing challenges from shifting interest rate environments, ING Groep N.V. (NYSE:ING) fundamentals remain strong, and its strategic initiatives are bearing fruit.
In Q2 2024, ING Groep N.V. (NYSE:ING) delivered robust commercial performance, with significant growth in both lending and deposits. The bank saw a notable increase in mobile primary customers, adding nearly 250,000 new customers this quarter alone, reflecting the success of its customer-centric approach. Over the past 12 months, the bank has grown its mobile customer base by over 900,000, keeping it on track to meet its annual growth target of one million.
The bank’s mortgage lending has also shown solid growth across all its markets, complemented by a strategic focus on optimizing capital usage in wholesale banking. With a strong inflow of EUR 15 billion in deposits this quarter, ING Groep N.V. (NYSE:ING) customer-balanced growth has exceeded expectations, achieving an impressive annualized growth rate of 6.2% in the first half of the year. Furthermore, ING Groep N.V. (NYSE:ING) continues to generate value for shareholders, evidenced by the announcement of an interim dividend of EUR 0.35 per share, contributing to a year-to-date yield exceeding 13%.
The bank’s ability to maintain a resilient net interest income and achieve double-digit fee income growth underscores its strong operational performance. Despite the potential headwinds from a declining interest rate environment, ING Groep N.V. (NYSE:ING) strategic initiatives, particularly its focus on digitalization and customer engagement, position it well for sustained profitability. With a healthy CET1 ratio and a return on equity of 14%, ING is well-positioned to continue delivering strong financial results, making it a compelling investment in the banking sector.
In the second quarter of 2024, there were 12 hedge funds holding positions in ING Groep N.V. (NYSE:ING), as compared to 15 in the previous quarter according to Insider Monkey’s database. The total value of these holdings is approximately $1.17 billion. Ken Fisher’s Fisher Asset Management held the largest stake among these hedge funds during this period.
Artisan Global Equity Fund made the following comment about ING Groep N.V. (NYSE:ING) in its Q4 2022 investor letter:
“Our financial services theme has performed well this year due to the tailwinds provided by rising interest rates. Banks, in particular, have used their strong balance sheets to generate robust earnings on solid loan growth and widening net interest income (the spread between the interest earned and paid on accounts). Our positions in BNP Paribas and ING Groep N.V. (NYSE:ING) increased relative returns this quarter and are beneficiaries of these tailwinds. This year, the European Central Bank increased short-term rates at its fastest pace ever, topping off 2022 with a 50bps increase to its key interest rate to bring the deposit facility to 2%, the refinancing rate to 2.5% and the marginal lending to 2.75%, a level not seen in 14 years. Policymakers also said that rates are expected to rise further to combat lingering high inflation. In addition to net interest income, both BNP Paribas and ING have supported a robust stock buyback program providing additional support to valuations. This quarter, for example, ING is winding up another €1.5 billion in share buybacks. Overall, we believe these companies are competitively advantaged given the support that rising rates can provide going forward. As always, the investment team will continue to closely monitor economic conditions as we move into 2023.”
04. Deutsche Bank Aktiengesellschaft (NYSE:DB)
Number of Hedge Fund Holders: 13
At number four on our list of seven best European bank stocks to invest in is Deutsche Bank Aktiengesellschaft (NYSE:DB). Deutsche Bank Aktiengesellschaft (NYSE:DB) delivered a robust Q2 2024 performance, significantly surpassing earnings expectations with an EPS of $0.76, compared to the anticipated $0.49. The bank reported strong revenue growth across its business segments, driven by capital-light businesses like Corporate Banking and Origination & Advisory, which gained market share. Despite a substantial litigation provision of EUR1.3 billion related to the Postbank acquisition, Deutsche Bank Aktiengesellschaft (NYSE:DB) underlying operational performance remained strong. Excluding this provision, the bank’s post-tax return on tangible equity was 7.8%, an improvement from 6.8% in the previous year, marking its best first half since 2011.
The bank’s cost-to-income ratio improved to 69% from 73% year-on-year, and its CET1 ratio remained solid at 13.5%, reflecting strong capital strength. Deutsche Bank Aktiengesellschaft (NYSE:DB) also made significant progress in operational efficiency, realizing substantial cost savings and achieving a 17% increase in pre-provision profit year-on-year. Notably, the Corporate Bank saw a 16% increase in incremental deals, while the Private Bank reported EUR19 billion in net inflows, contributing to growth in assets under management. Deutsche Bank Aktiengesellschaft (NYSE:DB) strategy to enhance its global market presence and strengthen client relationships is clearly paying off. With EUR30 billion in revenue within reach for 2024 and ongoing cost reductions, the bank is well-positioned to achieve its 2025 targets, including a return on tangible equity of over 10%. The strong performance across various segments and continued focus on operational efficiency underscore Deutsche Bank Aktiengesellschaft (NYSE:DB) resilience and growth potential, making it a compelling investment opportunity.
The number of hedge funds in Insider Monkey’s database owning stakes in Deutsche Bank Aktiengesellschaft (NYSE:DB) fell to 13 in Q2 2024, from 14 in the preceding quarter. The consolidated value of these stakes is nearly $0.45 billion. Among these hedge funds, Douglas Braunstein And James Woolery’s Hudson Executive Capital was the company’s leading stakeholder in Q2.
Third Avenue Value Fund stated the following regarding Deutsche Bank Aktiengesellschaft (NYSE:DB) in its first quarter 2024 investor letter:
“Idiosyncratic as the details of Bank of Ireland’s progress may be, many of the underlying principles are surprisingly common today. Deutsche Bank Aktiengesellschaft (NYSE:DB) (“Deutsche”) shares many similarities. Its capital base and balance sheet have improved dramatically in recent years. Management changes in 2018 precipitated sweeping changes in the way the bank is run, which, when combined with an improved interest rate environment, have led to Deutsche Bank’s greatly improved operating results. During 2023, Deutsche produced a return on tangible equity of roughly 7%, and it presently trades at roughly 51% of tangible book value, which marries with a price-to-earnings3 multiple of roughly 7x. Similar to Bank of Ireland, there is little incentive for Deutsche Bank to retain much of its earnings and continue to grow its capital base, unless compelled by regulators to do so, as long as each Euro of retained capital is being valued at roughly 50 cents. Deutsche recently announced that it will increase its dividend 5 materially in 2024, and plans to make additional, successive, 50% dividend increases in each of the next two years. The company also implemented a substantial share buyback, which is highly attractive from our long-term shareholder perspective, given that the shares are presently valued at roughly 50% of tangible book value and offer an earnings yield nearly twice the bank’s return on equity.”
03. HSBC Holdings plc (NYSE:HSBC)
Number of Hedge Fund Holders: 14
HSBC Holdings plc (NYSE:HSBC) stands at number three on our list of seven best European bank stocks to invest in. HSBC Holdings plc (NYSE:HSBC) recent first-half 2024 results affirm the bank’s strong growth trajectory, particularly in wealth management and corporate banking across key markets like Hong Kong, the UK, and the Greater Bay Area. The bank reported revenue of $37.3 billion, a 1.1% year-over-year increase, and earnings per share grew slightly to $0.88 from $0.86 despite a marginal decline in post-tax profits.
Notably, HSBC Holdings plc (NYSE:HSBC) aggressive share buyback program reduced its outstanding shares, leading to an impressive 17% return on tangible equity. The bank’s strategic focus on expanding its wealth management division has begun to bear fruit, with wealth revenue up 12% over the past two quarters. This segment remains a critical growth driver as HSBC Holdings plc (NYSE:HSBC) attracts new clients and increases assets under management, particularly in Hong Kong, where the bank onboarded 345,000 new customers in just six months.
In the UK, HSBC Holdings plc (NYSE:HSBC) also demonstrated robust performance, with a pre-tax profit of $3.7 billion, an 11% increase year-over-year. The bank’s growing presence in the UK mortgage market, with a market share of 8.1%, reflects its solidified position in this region. Additionally, HSBC’s successful hedging strategies have mitigated potential downsides from anticipated declines in net interest margins (NIM) as interest rates fluctuate.
Valuation metrics underscore HSBC Holdings plc (NYSE:HSBC) attractiveness, trading at a P/E ratio of 7.7 with a dividend yield of 6.86%, positioning it as a compelling value compared to peers like JPMorgan Chase & Co. Management’s commitment to shareholder returns, evidenced by consistent dividend payouts and share buybacks, further strengthens the investment case. With continued growth in key regions, strategic focus on high-margin segments, and disciplined cost management, HSBC Holdings plc (NYSE:HSBC) is well-positioned for sustained long-term growth, making it a strong buy for investors seeking stable returns in the financial sector.
In the second quarter of 2024, there were 14 hedge funds holding positions in HSBC Holdings plc (NYSE:HSBC), as compared to 17 in the previous quarter according to Insider Monkey’s database. The total value of these holdings is approximately $0.06 billion. Ken Griffin’s Citadel Investment Group held the largest stake among these hedge funds during this period.
02. Barclays PLC (NYSE:BCS)
Number of Hedge Fund Holders: 20
Barclays PLC (NYSE:BCS) continues to demonstrate strong operational performance and financial resilience, positioning itself favorably for sustained growth. The bank is making significant strides towards achieving its ambitious targets outlined in its three-year strategic plan. With a focus on improving returns and enhancing shareholder value, Barclays is on track to surpass its return on tangible equity (RoTE) goal of 10% for 2024, having achieved 11.1% in the first half of the year. The bank’s solid performance is reflected in its increased net interest income guidance for 2024, now expected to reach approximately GBP11 billion, up from GBP10.7 billion. This upward revision is driven by favorable interest rate dynamics and effective cost management. Barclays PLC (NYSE:BCS) has also shown remarkable progress in managing expenses, with a cost-to-income ratio of 62% for the first half of the year and a commitment to achieving GBP1 billion in cost savings by year-end.
Barclays PLC (NYSE:BCS) strategic focus on capital distribution is evident through its substantial shareholder returns. The bank has announced a GBP1.2 billion payout for the first half of 2024, including dividends and a buyback program, as part of its broader plan to return at least GBP10 billion to shareholders by 2026. This move underscores Barclays’ commitment to delivering value to its investors while maintaining a robust capital position, with a CET1 ratio of 13.6%, well within its target range.
In terms of divisional performance, Barclays PLC (NYSE:BCS) UK and Private Banking & Wealth Management stand out with impressive returns on tangible equity of 22.3% and 30.8%, respectively. The UK Corporate Bank has also delivered strong results with an 18% RoTE, reflecting its effective client relationship strategies and investment in growth. The bank’s investment banking and markets divisions have demonstrated stability and growth, with significant increases in fee income and positive performance in securitized products. Overall, Barclays PLC (NYSE:BCS) disciplined execution of its strategic initiatives, combined with its strong financial metrics and shareholder-focused approach, makes it a compelling investment opportunity for those seeking exposure to a well-capitalized and growth-oriented banking institution.
The number of hedge funds in Insider Monkey’s database owning stakes in Barclays PLC (NYSE:BCS) fell to 20 in Q2 2024, as compared to 22 in the preceding quarter. The consolidated value of these stakes is nearly $0.13 billion. Among these hedge funds, Jim Simons’s Renaissance Technologies was the company’s leading stakeholder in Q2.
01. UBS Group AG (NYSE:UBS)
Number of Hedge Fund Holders: 33
Topping our list of seven best European bank stocks to invest in is UBS Group AG (NYSE:UBS). UBS Group AG (NYSE:UBS) showcases exceptional financial resilience with its latest results, significantly exceeding earnings forecasts. Reporting an EPS of $0.34, UBS has surpassed the expected $0.12, highlighting the successful execution of its post-Credit Suisse acquisition strategy. Under CEO Sergio Ermotti’s leadership, the firm achieved a net profit of $2.9 billion in the first half of the year, with an underlying return on CET1 capital of 9.2%.
UBS Group AG (NYSE:UBS) effective integration efforts have realized nearly half of its targeted cost savings, while the CET1 ratio remains robust at 14.9%. The bank’s strong performance is bolstered by substantial net new asset inflows totaling $127 billion. UBS Group AG (NYSE:UBS) has strategically reduced risk-weighted assets and streamlined operational expenses, maintaining a solid capital buffer. Despite prevailing market uncertainties, UBS’s client-centric approach and disciplined risk management underpin its long-term financial targets, including ongoing dividends and share buybacks. This proactive strategy positions UBS Group AG (NYSE:UBS) strongly for sustained growth and stability in the financial sector.
In the second quarter of 2024, the number of hedge funds with stakes in UBS Group AG (NYSE:UBS) increased to 33 from 32 in the previous quarter, according to Insider Monkey’s database. The combined value of these stakes is approximately $2.43 billion. Christer Gardell And Lars Forberg’s Cevian Capital emerged as the largest stakeholder among these hedge funds during this period.
Patient Capital Management stated the following regarding UBS Group AG (NYSE:UBS) in its fourth quarter 2023 investor letter:
“UBS Group AG (NYSE:UBS) is a name we opportunistically purchased following the banking crisis earlier in the year. UBS benefited from buying its largest local competitor, Credit Suisse, for an 80% discount from where it was trading before the crisis. We bought after the deal, believing the market’s myopic focus on short-term integration risks failed to properly value the attractive set of assets. While the stock has done well since then, we still believe it is underappreciating the long-term return potential of the business.”
While we acknowledge the potential for UBS to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
