Euro Zone Bank Stocks Gear Up for Best Year-End Since 2010

Forex - Eurozone bank stocks are on track to close the year at their highest level in over a decade, buoyed by lenders navigating a drop in interest rates and promising record shareholder returns. According to reports, the Euro Stoxx Banks index, which tracks the largest lenders in the monetary bloc, is poised to end 2024 with a gain of more than a fifth, marking its first year-end above 142 since 2010.

European lenders have seen their profits increase over the last three years due to high interest rates. However, even as central banks began lowering rates this year, fears about the impact on lenders' net interest margins did not affect stock prices. Andrew Stimpson, an analyst at Keefe, Bruyette & Woods, stated, "European banks had another great year. The market worried much more about the impact of falling interest rates than it needed to." Stimpson added that lenders successfully hedged against the drop in interest rates—referred to as structural hedging—meaning "much of the gains in profitability have been preserved as rates decline."

Banks earn profits through the difference between the interest they receive from borrowers and the interest they pay to depositors, known as net interest income. UniCredit has emerged as the best-performing major bank stock in the Eurozone, gaining over 50% during the year. Italian Intesa Sanpaolo rose by more than 40%, while German Deutsche Bank's shares have increased by over 30%.

BNP Paribas is among the worst-performing banks in the sector, with a decline of approximately 8% in its stock value. Despite a stagnant merger and acquisition activity and muted credit growth, the year 2024 has been one of the most profitable for European banks, thanks to high interest rates and structural hedges. According to Citigroup analysts, as a result, the sector delivered an average return on equity of 13%.