European Banks’ Returns Set to Outdo American Counterparts

Europe’s banks are reportedly set to have a much better year than their U.S. rivals.

The KBW Bank Index, made up of the top 24 banks in America, is expected to return less than 1% this year, Bloomberg News reported Monday (Jan. 8) while Europe’s Stoxx 600 Bank Index is forecast to return more than 22%, making this its second-best year since 2012.

According to Bloomberg, this 21-point gap is the largest for expected returns at the beginning of a year since at least 2005, the year the news outlet began logging price targets.

The report says analysts view banks in Europe as undervalued, while a consensus is forming that the Bank of England and European Central Bank will cut rates in the second quarter, with robust earnings anticipated.

And while lenders like JPMorgan and Wells Fargo reported record profits in the third quarter, banks are dealing with pressures including slower loan growth and worries about rising debt defaults. The KBW Index ended 2023 on a high note, but is still around 34% lower than the record it reached in January 2022.

“I’m more cautious this year than I have been,” Wedbush Managing Director of Equity Research David Chiaverini told Bloomberg. “I feel as if the hangover from all the stimulus from Covid hasn’t been fully felt yet, and that’s what makes me more guarded right now.”

The news came the same day as reports that America’s largest banks were preparing to report a spike in bad loans with their earnings this week.

Non-performing loans at those banks — that is, debt from borrowers that hasn’t been repaid for at least 90 days — are projected to have risen to $24.4 billion for the four largest banks, an increase of nearly $6 billion since the end of 2022.

According to the report from the Financial Times, earnings for the six biggest banks — JPMorgan, Wells Fargo, Bank of America, Citi, Goldman Sachs and Morgan Stanley — were projected to have dropped 13% on average for the final quarter of 2023 compared to the same three-month period in 2022.

Four of those banks — Wells Fargo, Bank of America, Citi and JPMorgan — are scheduled to report their earnings on Friday (Jan. 12).