European banks are set to report robust profits for the final quarter of 2024, driven by resilient lending margins and strong investment banking revenues. However, analysts are questioning the sustainability of this growth as falling interest rates are expected to weigh on performance in 2025.
The sector has seen a period of buoyancy, with shares trading at their highest levels since 2010 and several institutions leveraging their improved financial standing to pursue acquisitions. Recent examples include UniCredit acquiring a stake in Commerzbank and Monte dei Paschi’s surprising bid for Mediobanca. Analysts at S&P note that banks are increasingly looking to diversify product lines and seek growth through acquisitions and partnerships, signalling a potential wave of long-anticipated consolidation.
European banks also anticipate increased corporate dealmaking, fuelled by a booming U.S. economy. However, concerns linger over competitive pressures from American banks, as the new Trump administration eyes deregulation that could provide a significant advantage to U.S. institutions. Despite this, 2024 results are expected to remain solid. Analysts have raised profit forecasts, anticipating slower-than-expected declines in net interest income (NII), which measures the difference between earnings on loans and payouts on deposits. For example, Spain’s Bankinter saw declining lending income offset by higher fees.
Investment banking, a key revenue driver for many U.S. banks, is also expected to bolster earnings for European lenders with large trading operations. Yet, with the European Central Bank (ECB) and the Bank of England (BoE) poised to cut rates faster than the U.S. Federal Reserve, the outlook for net interest margins is dimming.
Institutions like Deutsche Bank are likely to report mixed results. The German bank is forecast to post a Q4 net profit of €380 million, a significant drop from €1.26 billion a year ago, weighed down by legal provisions and restructuring costs.
As lenders navigate 2025, outperforming targets will become increasingly challenging. JPMorgan has flagged BNP Paribas’s €12.8 billion net profit goal as particularly ambitious given weakening revenue trends. With a tightening rate environment and growing competition, European banks face a crucial year in balancing growth and resilience.
