European banks to reward investors with more payments of €123bn

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European banks are set to return close to 123bn euros to shareholders for the second year in a row as lenders raise earnings above their pre-crisis peak and inflation it increases.

The biggest listed banks in Europe and the UK are expected to generate €74.4bn in dividends and €49bn in buybacks when they report 2024 earnings in the coming weeks, according to estimates compiled by UBS.

The rate of dividends will exceed even the total blockbuster offered to investors in 2023, as managers seek to share the large profits earned as interest rates rise rapidly and compensate shareholders for shortfalls in payments during the Covid-19 epidemic.

The increase in capital gains comes after a period in which many investors shunned the sector, which has been in a depressed state, a decade of weak shareholder returns after the financial crisis of 2008, and the intervention of regulators in 2020 to restrict earnings and purchases.

HSBCBNP Paribas and UniCredit are expected to return the most money to shareholders after their 2024 results, according to UBS estimates, distributing €19.3bn, €11.6bn and €8.8bn respectively.

The outlook for the European banking industry has improved significantly since central banks began to raise interest rates in 2022they have endured a painful decade of low or bad ratings. Bank profits increased as they passed on higher interest rates to borrowers faster than to depositors.

Yields on Eurozone lenders are at their highest level in nearly a decade. But investors were wondering whether more payments could be held as central banks have begun to cut interest rates, which is expected to put pressure on interest income – the difference between what banks what they pay in deposits and what they receive in loans and other assets.

Jérôme Legras, managing partner of Axiom Alternative Investments, which has stakes in most of Europe’s largest banks, said that the current financial situation was stable and that Axiom expected “a modest increase in yields all of 2025 compared to 2024”.

Cheap deposits, returning borrowers at high rates and high profits from interest-earning businesses have improved the outlook, Legras added.

“Payments are moving in the opposite direction but we also see a better (interest rate) outlook due to recent book purchases, lower deposit costs and higher interest rates,” he said. a hall for banks with businesses that have a strong interest in wealth and property. system, he said.

Citigroup said they expect European investors to announce 80bn euros in shares and 54bn euros in buybacks by 2025.

However, the ratings follow US peers and many European lenders are still trading at discounts to the book value of their assets.

“We think European banks are being bought for the decline in earnings and payments that we don’t see,” said Jason Napier, head of European equities at investment bank UBS.

“We predict that lenders will issue loans and purchases at a rate of 10 per cent of market capitalization or more over the next three years: double that of the capital market as a whole,” said Napier.

There are also growing concerns that a less restrictive US regulatory regime under President Donald Trump could make European banks less competitive, even in their home markets, widening the deficit. .

UniCredit CEO Andrea Orcel, speaking at the conference World Economic Forum In Davos on Tuesday, he said: “Right now, the expectation is that the US will be ahead of Europe in terms of less regulation. Also considering that US banks operate in Europe that will put us at a competitive disadvantage.”