2023: a record year for the European banking sector
- ROE > 12%, highest since the GFC
- €120bn distributed in dividends and buybacks, highest since the GFC
- EPS 75% higher vs. 2019
- Driven by net interest income 25%-30% higher vs. 2019 despite the credit slowdown, the inverted rate slope and an
undemanding context for Investment Banking activities
Not a blip but a profitability reset
- Q4 earnings have been mixed but in aggregate resulted in small expectation improvements for 2024/2025
- Analysts are expecting stable NII and net income in 2024/2025 vs. 2023, with buybacks fueling ~3%/year EPS growth
- Uncertainties remain around the evolution of deposit costs as rates come down, as well as asset quality, particularly in CRE,
but not in a magnitude that should derail earnings trajectory
NII: tailwinds ultimately stronger than headwinds
- NII wont’ evolve in tandem with short-term rates
- There are headwinds: the shift from current accounts to savings products or term accounts is still ongoing, and banks will earn less on cash and short duration assets as the ECB lowers policy rates
- But also, tailwinds: the longer parts of the balance sheet (fixed loans, mortgages, deposit hedges) still are to reprice at current interest rate levels
- Net, headwinds and tailwinds should offset each other in 2024/2025 and tailwinds should start to dominate in 2026