Europe’s Bank bulls see more upside after 21% quarterly gain
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Europe’s Bank bulls see more upside after 21% quarterly gain
Lenders from the UK to Austria have benefited from the Middle East ceasefire, higher interest rates, bets that artificial intelligence will boost efficiency, and renewed deal talks in Italy.
Bloomberg
July 01, 2026 / 12:21 IST
Europe’s Bank
- Stoxx 600 Banks Index rose 21% in Q2, second-best in Europe
- Higher rates and AI bets boost European banks’ performance
- Banco Santander became Spain’s most valuable listed company
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Lenders from the UK to Austria have benefited from the Middle East ceasefire, higher interest rates, bets that artificial intelligence will boost efficiency, and renewed deal talks in Italy. The Stoxx 600 Banks Index gained 21% in the quarter, making it Europe’s second-best performing sector after technology
“Eurozone banks remain a compelling asset to position for the next phase of Europe’s cyclical recovery as the region looks beyond geopolitics,” Bank of America Corp. analysts including Riddhi Prasad wrote in a note. “With valuations still cheap and positioning light, there may be further upside potential.”
Positive second-quarter returns mark a rebound from the first three months of the year, and cap the 13th positive quarter in 14 for European lenders. The sector’s index has gained roughly 180% since the start of 2023, as investors price in stronger balance sheets and a revival in dealmaking and trading revenues
The European Central Bank in June raised interest rates for the first time in three years, a boost for the banks’ main business of lending. However, by the end of the month, markets had pared further hike expectations to less than a full 25 basis point by year-end, driven by falling oil prices and dovish signals from President Christine Lagarde
Valuations remain supportive but perhaps less attractive after the sharp multi-month rally. The sector is currently the cheapest in Europe, with a forward price-to-earnings ratio of around 11.5 times, above its five-year average of approximately 8 times. The price-to-book ratio currently stands at 1.48 times, well above its long-term average
“From a fundamental perspective, we remain quite constructive on the outlook for the year. War in the Middle East has changed the likely course of monetary policy towards higher interest rates. This supports banks’ margins and profitability, offsetting the greater risks to asset quality,” said Marco Troiano, head of financial institutions at Scope Ratings
Banco Santander SA became Spain’s most valuable listed company during the quarter, overtaking Zara-owner Inditex SA for the first time in eight years, while Italy’s Banca Monte dei Paschi di Siena SpA was among the quarter’s top performers as takeover interest intensified. Intesa Sanpaolo SpA and Banco BPM SpA are both pursuing deals involving the lender
UniCredit SpA has also outperformed as it continues its pursuit of Germany’s Commerzbank AG, while Bawag Group AG has agreed to buy Irish bank Permanent TSB Group Holdings
“As bank valuations are much more healthy, it makes sense for the banks to be more open to acquiring peers,” Keefe, Bruyette & Woods analyst Andrew Stimpson said, recently reiterating his overweight stance on the sector
Bloomberg
first published: Jul 1, 2026 12:21 pm
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