European banks get their meme-stock moment
The region’s sector has been on a rally of late and can still look forward to an earnings boost
A long-suffering company suddenly doubles in value on the back of newfound investor exuberance. Is it the latest revival of meme stock mania, or just another European bank?
Société Générale’s solid second-quarter results last week pushed its year-to-date share price gains briefly above 100 per cent, until Donald Trump’s next salvo of tariff announcements dragged the stock back on Friday.
Admittedly, SocGen has been helped by an especially lousy starting point but, among its rivals, the stock is exceptional only for the extent of the gains, not the direction.
The wider European banking sector has been on such a barnstorming rally this year that even bullish analysts were wary of a pullback as earnings season began at the start of July; instead, the Stoxx 600 banks index of European lenders jumped 7 per cent over the month, bringing its 2025 gains to almost 40 per cent.
If the rally was looking tired before, surely it must be on its last legs after the latest sprint? Not necessarily. The sector is no longer cheap, but most of the companies are in decent shape and there are still some tailwinds that could help boost earnings.
The economic and political uncertainty that dominated the past few months weighed on some areas of growth in the second quarter, but banks did a decent job controlling what they could control. Costs across the sector were lower than expected. Deutsche Bank and BBVA are two that comfortably beat analysts’ cost expectations.
Moreover, while the uncertainty discouraged some activity, there were few signs that clients were in trouble; provisions for bad loans were also lower than feared. NatWest, SocGen and UniCredit were among those that upgraded their full-year earnings forecasts.
Sharp share price drops in reaction to Trump’s latest tariff announcements on Friday highlighted the most obvious risk to the rosy outlook. Should trade-related uncertainty turn into a full-on economic downturn that hits employment levels, banks would suffer.
But Friday’s response was muted compared with the panic that accompanied the first wave of announcements in April. If markets continue to rebound and recent trade agreements lead to less unpredictability over the medium-term, investment banks in particular could benefit — Barclays, UBS, Deutsche and BNP Paribas all highlighted strong pipelines of clients keen to push ahead with deals.
Even without that, banks continue to benefit from moves in the yield curve — the difference between short and long-term bond yields. A wider gap — known as a steeper curve — increases profitability for banks, since their basic model is to borrow short and lend long. BNP and Spain’s CaixaBank both highlighted the benefits from steepening this quarter, and the trend should continue as European governments increase long-term borrowing to fund infrastructure and defence spending. Bank investors had to wait a long time for this moment; they deserve to enjoy it a little longer yet.