JPMorgan: European bank shareholder returns have already peaked

Equity returns for European bank shareholders appear to have already peaked, according to JPMorgan Chase strategists, who believe the prospect of European Central Bank (ECB) interest rate cuts this year will reduce earnings for the sector, according to Bloomberg.

Positive catalysts, including higher bond yields and rising earnings per share, will fade, according to JPMorgan strategists. They point out that while the European economy has avoided a recession in the second half of 2023, its outlook is considered weak. "Both dividends and share buybacks are unlikely to be safe going forward if the credit and macro environment weakens or if regulatory scrutiny increases," JPMorgan strategists added.

According to the quoted source, credit institutions have benefited from the European Central Bank's "historic campaign" of monetary tightening, but there are warnings that increases in loan income will be limited, which will affect the earnings of banks in the region.

It should be noted that Spain's Banco Santander yesterday joined European banks that recently announced increased payouts to investors, informing about a new share buyback worth 1.5 billion euros ($2.2 billion). The bank also increased its cash dividend after making a record profit last year.

Deutsche Bank (Germany), Intesa Sanpaolo and UniCredit (Italy) also announced share buyback plans with the release of their 2023 financial results.

• Big European banks had record profits last year

For the first time in history, Europe's largest banks last year had cumulative profits of more than 100 billion euros ($108 billion), in the context in which the impetus given by the increased interest rates by the European Central Bank (ECB) allowed commercial banks to generate record results, reports Bloomberg.

The combined net profit of the 20 biggest banks in continental Europe, which have so far reported results for 2023, rose to euro103 billion, up from euro78 billion in 2022. In addition, three-quarters of banks from the analyzed group recorded the highest profits in their history last year, according to Bloomberg data, cited by Agerpres.

The increase in profitability has allowed the banks to increase the rewards given to investors and also boosted their share price, a stock market index that groups the shares of the banks registering an advance of about 20% last year. Even if the significant advance in profits will be difficult to repeat this year, many banks are optimistic that the increase in commission income will allow them to continue to increase their bottom line.

The group of banks analyzed by Bloomberg does not include the Swiss banking giant UBS Group AG, whose profit rose to $29 billion last year on the back of its takeover of rival Credit Suisse.