Outlook 2025 on European Financials

The cumulative ~90% outperformance¹ since the end of 2020 is impressive. However, it has all been driven by earnings revisions and carry. European banks remain downright cheap. Here are our 3 main convictions about European financials:

• Fundamentals look well insulated from macro gyrations. Double-digit returns on equity are set to persist even if interest rates go as low as 1%.
• Subordinated financial credit offers many compelling carry and regulatory opportunities. At the asset class level, positive upgrades and strong technicals should support spreads.
• A favourable market configuration and further gains in long-term distribution capacity set European financial equities for a 5th year of outperformance. 

1 Past performance is not a reliable indicator of future performance.