Our loyal readers know that apart from being equity enthusiasts, we are also ABBA fans. European banks investors must currently sing ABBA’s song ‘Money, Money, Money’ when looking at their banking portfolios and dividends. In fact, after a spectacular 2024, EU banks’ momentum has increased further, up 25% YtD, outperforming almost every other sector worldwide. As such, should we welcome EU banks as the new ‘growth sector’, even defying the M7?
We acknowledge all the great reasons to invest in European banks – e.g., a more benign rates environment, rock-solid capital, positive operational jaws with low provisioning and top-notch shareholder remuneration. However, we cannot deny that the rerating in recent years has been just as spectacular. And as we head into a potential global tariff war, we cannot forget that banks tend to be the first ‘casualty’ if the economy starts showing signs of deterioration. There is no reason why this time should be any different. One should, therefore, inevitably proceed with caution in European banks, with clouds looming on the horizon. But, as always, there will be winners and losers, so ‘cherry-picking’ will be crucial. Healthy corrections could bring interesting investment opportunities as, in the end, no one sings ‘Money, Money, Money’ better than European banks.