A value-based case for today’s European banks

European banks remain attractive because structural profitability improvements, rising shareholder distributions and undemanding valuations leave room for further upside.

• Since the pandemic, normalized interest rates have improved deposit spreads, while return on assets is near multi-year highs, suggesting stronger underlying earnings rather than gains driven by leverage or riskier lending.
• Cost-cutting, technology and AI adoption are creating operating leverage, while wealth and asset-management businesses are growing assets under management by 8–12% annually and reducing banks’ reliance on net interest margins.
• Five- to seven-year structural hedge portfolios are rolling into higher yields, and average Common Equity Tier 1 ratios are roughly 16%, well above regulatory minimums.
• European banks announced 75 buyback programs worth €61 billion between 2020 and 2024, while payouts are rising toward 100% of annual earnings without reducing CET1 ratios or shrinking balance sheets.
• The sector trades at about 8.9x earnings for low-double-digit estimated 2027 earnings growth, with total shareholder yield of roughly 8% annually; European bank holdings trade at 9.7x forward earnings versus 14.7x for the MSCI Europe Index and 17.7x for the MSCI World Index.

Takeaway: Boston Partners believes European banks have moved from a deep-value recovery trade to a quality-compounder phase and should retain upside, although the case depends on continued profitability, disciplined capital allocation and the persistence of these valuation and shareholder-yield advantages.