Shareholder returns are at peak for European banks: JPMorgan

EUROPEAN banks’ capital returns to shareholders might have already reached a peak, in response to JPMorgan Chase strategists.

The prospect of central financial institution charge cuts this 12 months will scale back earnings energy for the sector, a group led by Mislav Matejka wrote in a observe on Monday (Feb 19), including that present returns “are likely as good as it gets.”

The strategists stay underweight on the sector, as constructive catalysts together with increased bond yields and earnings per share development fade. “We note the EPS revisions of European banks have just recently entered negative territory,” the strategists wrote.

While the European financial system prevented a recession within the second half of 2023, its prospects are at the moment seen to be weak. “Both dividends and buybacks are unlikely to be safe if the credit and macro environment weakens, or if regulatory scrutiny increases,” the JPMorgan strategists added.

Lenders have benefited from the European Central Bank’s historic monetary-tightening marketing campaign, however its anticipated conclusion has sparked warnings that will increase in lending income can be capped, curbing earnings development for banks within the area.

Still, lenders had been among the many best-performing fairness sectors in Europe on Monday, amid hypothesis as to when the world’s central banks will start reversing the rate of interest hikes they enacted to curb inflation. ECB president Christine Lagarde final week cautioned towards speeding into cuts amid considerations over reigniting value pressures.

The JPMorgan strategists famous that their underweight on banks is “one of the sector calls where we face the most pushback from investors.” However, given bond yields have seemingly peaked, “banks should be peaking, as well.”

Banco Santander has been the newest to affix European friends in elevating investor payouts because it introduced on Monday a brand new 1.5 billion euros (S$2.2 billion) share buyback and boosted its money dividend after file revenue final 12 months.

The likes of Deutsche Bank, Intesa Sanpaolo and UniCredit have additionally introduced share buyback plans throughout their 2023 earnings shows. BLOOMBERG