Bank stocks have delivered massive gains over the last three years but valuations remain low and the outlook is strong.
Citywire’s Global Elite Companies index is set to start 2026 with banks accounting for almost one-third of its 92 constituents by number, and just over half of them are from Europe.
The index tracks the very best ideas from about 6,000 stocks held across the portfolios of the world’s best portfolio managers.
So why are the world’s smartest professional investors making such big bets on banks, and especially European ones?
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Another big year
Banks have had a storming run in 2025. The 29 index constituents from the sector have averaged a year-to-date total return of 69% measured in US dollars, although not all have been part of the index for the whole of 2025.
But it is the European banks that stand out. On average, they’ve returned a mammoth 92% measured in US dollars, or 74% in local currencies.
European Elite index banks
| Name | F’cst P/ TangBV | F’cst divi yield | F’cst 2yr EPS CAGR |
|---|---|---|---|
| AIB (IE:A5G) | 1.4 | 5.0% | 6.5% |
| BBVA (ES:BBVA) | 1.9 | 5.1% | 10% |
| Banco Santander (ES:SAN) | 1.5 | 2.8% | 12% |
| Barclays (GB:BARC) | 1.0 | 2.4% | 20% |
| BNP Paribas (FR:BNP) | 0.8 | 7.3% | 10% |
| Deutsche Bank (DE:DBK) | 1.0 | 3.7% | 11% |
| Erste Bank (AT:EBS) | 1.9 | 3.6% | 14% |
| HSBC (GB:HSBA) | 1.4 | 5.3% | 6.8% |
| Intesa Sanpaolo (IT:ISP) | 1.8 | 7.4% | 7.4% |
| Lloyds (GB:LLOY) | 1.5 | 4.4% | 25% |
| NatWest (GB:NWG) | 1.5 | 5.6% | 11% |
| Societe Generale (FR:GLE) | 0.8 | 2.9% | 16% |
| Standard Chartered (GB:STAN) | 1.2 | 2.3% | 13% |
| UBS (CH:UBSG) | 1.4 | 2.6% | 26% |
| UniCredit (IT:UCG) | 1.5 | 5.7% | 8.8% |
Source: FactSet, as of 9 Dec 2025. CAGR = compound annual growth rate. Forecasts based on consensus estimates for next 12 months.
2025 is no flash in the pan. While AI plays may have caught the headlines over recent years, the tremendous share-price ascent of the banks has been an ongoing phenomenon since 2022.
The run has been fueled by rising earnings and growing confidence that central banks will not revert to the zero and negative interest-rate policies that for many years hammered banks’ profits.
But after such stellar performance, are Elite Investors hoping for too much by betting so big on prospects for 2026?
The gift that keeps giving
Among the Elite Investors monitored by Citywire – all of whom are among the top 3% out of over 10,000 equity managers globally, based on risk-adjusted performance – the question of what 2026 holds for the sector is especially pertinent for Axiom AI’s Antonio Roman and the firm’s CIO David Benamou. That’s because AAA-rated Roman manages the Axiom European Banks Equity fund.
‘It’s not only about stock performance. It is also about fundamental drivers,’ Benamou said, of Europe’s banks. ‘When we look at the underlying components – of earnings, of revenue, of cost, and ultimately capital – 2025 was an incredible year.’
‘For 2026 we see revenues growing again with quite strong savings inflows and lending volumes up … In terms of valuation, statistically, the banks remain cheap.’
If ever there were investors incentivised to talk up the prospects of Europe’s banks, they’re Roman and Benamou. But their confidence is nevertheless striking after such a run. And there is validation to their views, not only from the performance record of the Axiom European Banks fund but also from the heavy backing of the sector by many other Elite managers.
What’s more, while the big discounts to book value that characterised the sector three years ago have largely gone, with an average price-to-forecast-earnings ratio of 10.7 for banks in the index and 9.5 for the European contingent, ratings do not look like a big concern.
Even less so considering forecast annualised earnings growth over the next two years is 12.6% for all 29 banks and 13.2% for the European ones. Meanwhile, forecast upgrades are coming through thick and fast.
‘Banks have continued to perform in terms of earnings expectations and growth of earnings expectations,’ said Benamou. ‘This accelerated in 2025 when the rest of the market was rather flat … and these strong dynamics are still on for 2026.’
Letter from America
European banks look particularly attractive based on their emulation of strategies that have powered strong performance in their US counterparts. In particular, Roman and Benamou point to the potential to free capital by being cleverer with balance sheets.
‘What is starting to play out is better control on risk-weighted assets through securitisation,’ said Benamou. ‘We all know Europe’s banks are late to the securitisation game versus the US, but they are catching up, and regulators are trying to simplify the use of securitisation.’
The US could also lead the way on loosening regulation. There is a strong expectation that changes to banking rules could free up significant amounts of capital for American banks next year. This trend could spread to Europe, especially given the desire of politicians to energise some of the continent’s largest economies. This month, the Bank of England has loosened some capital requirements for UK banks.
All this should help protect and enhance banks’ impressive levels of profitability. Average forecast return on equity from the index’s European banks stands at 12.7%, just ahead of the 12.5% boasted by North American index peers.
Cash dispensers
As European banks’ profits have soared, they have returned heaps of cash through dividends and buybacks, supported by robust balance sheets that were rebuilt over many years following the financial crisis. This should continue to be a feature of the sector. Europe’s banks currently boast shareholder yields (dividends plus net buybacks) around the 8-9% mark.
Growth prospects for the year ahead also look strong, including from less-cyclical fee income linked to activities such as wealth management.
A pickup in acquisitions is expected to help. While Roman and Benamou believe big, politicised deals could be blocked, they see good scope for smaller purchases where big banks can create value by cutting costs as they fold acquired loan books into their operations.
Examples of such deals this year have included Barclays’ (GB:BARC) purchase of the banking operations of supermarket group Tesco (GB:TSCO) in the UK.
A question in 2026 could be whether competition for acquisitions and customers will start to affect some banks’ returns.
There are other potential worries. Roman and Benamou point to what they call ‘the private credit bubble’. But if there is trouble from this source, they believe most of it will be contained to the US. Nevertheless, they are keen to avoid excessive exposure to European banks with sizable investment banking operations.
They’re also less keen on interest-rate-sensitive names, which have had a very strong run, such as some of the Italian and Spanish banks. By contrast, they’re keen on British banks.
Continent-hopping
American and Asian banks also offer promise for 2026. US banks are currently firing on all cylinders with strong performance from lending, trading and deal-making. Meanwhile, the prospect of falling capital requirements presents the opportunity of increased growth and cash returns.
North American Elite index banks
| Name | F’cst P/ TangBV | F’cst divi yield | F’cst 2yr EPS CAGR |
|---|---|---|---|
| Bank of America (US:BAC) | 1.8 | 2.2% | 15% |
| Bank of New York Mellon (US:BK) | 3.5 | 1.9% | 11% |
| Canadian Imperial Bank (CA:CM) | 2.2 | 3.4% | 9.7% |
| Capital One (US:COF) | 2.1 | 1.4% | 13% |
| Citigroup (US:C) | 1.0 | 2.3% | 26% |
| Goldman Sachs (US:GS) | 2.5 | 1.9% | 13% |
| JPMorgan Chase (US:JPM) | 2.8 | 2.0% | 6.7% |
| State Street (US:STT) | 2.0 | 2.8% | 13% |
| Wells Fargo (US:WFC) | 1.9 | 2.1% | 12% |
Source: FactSet, as of 9 Dec 2025. CAGR = compound annual growth rate. Forecasts based on consensus estimates for next 12 months.
The Asian banks that have won index places all hail from Japan and Korea. Both countries are attempting to make companies more shareholder-friendly with a focus on better return on equity, dividend payments and shareholder rights. Japanese banks are also unwinding cross-holdings in other companies, thereby releasing capital.
With the above target inflation in Japan, lenders could benefit from rising rates, which should push up the profitability of their operations. However, there are also worries that rising rates in Japan could cause problems for markets globally should it provoke a major reversal of the carry trade, whereby investors borrow in yen to invest in higher-yielding overseas assets.
Asian Elite index banks
| Name | F’cst P/ TangBV | F’cst divi yield | F’cst 2yr EPS CAGR |
|---|---|---|---|
| KB Financial (KR:105560) | 0.7 | 3.2% | 8.0% |
| Mitsubishi UFJ Financial (JP:8306) | 1.4 | 3.2% | 11% |
| Mizuho Financial (JP:8411) | 1.2 | 2.7% | 10% |
| Shinhan Financial (KR:055550) | 0.7 | 3.3% | 7.6% |
| Sumitomo Mitsui Financial (JP:8316) | 1.3 | 3.2% | 10% |
Source: FactSet, as of 9 Dec 2025. CAGR = compound annual growth rate. Forecasts based on consensus estimates for next 12 months.
But generally, there are many reasons to be positive about the outlook for banks, especially in Europe. Plenty of smart money is currently backing that optimistic view.
source: CITY WIRE
