Europe’s biggest lenders are on track to return just over 50 billion euros (S$72 billion) to shareholders for the first time ever, highlighting just how big of a boost they’ve received from higher interest rates.
Ten of the euro area’s top lenders are likely to hit 50.02 billion euros in combined payouts this year once planned interim dividends have been disbursed in coming months, according to calculations by Bloomberg based on company filings. The figure could rise further if banks declare fresh share buybacks before the end of the year.
The unprecedented amount of money handed to investors is a key reason why European banks have gone from perennial stock laggards to some of the region’s best performers. Their profits have been turbocharged by the rapid sequence of interest rate hikes kicked off by the European Central Bank (ECB) two years ago, with payouts probably more than doubling on pre-pandemic levels, the Bloomberg calculations show.
UniCredit is set to make this year’s highest shareholder payouts among the group, totalling just over 10 billion euros, the Bloomberg review showed. That’s close to twice the entire amount the lender returned to investors during the thirteen years stretching from the financial crisis through the year before the ECB started its rate hikes, according to the calculations.
The Italian bank’s share price has risen about four-fold since the ECB’s policy reversal in mid-2022. The preceding eight years of negative interest rates had weighed heavily on the earnings of EU lenders.
Intesa Sanpaolo, ING Groep and BNP Paribas are on track to be the next biggest payers, while Deutsche Bank and Societe Generale are likely to return the lowest amounts.
The ECB is anticipated to cut interest rates later this month for a second time this year, raising questions about how sustainable the payouts bonanza will be.
“Most European banks still have excess capital, but more importantly, we believe that their much-improved profitability should continue supporting organic capital generation, which they can return through dividends and buybacks,” Morningstar analyst Johann Scholtz said. “We expect flattish earnings for European banks over the next three years, but this should allow them to maintain current dividends at least.”
Banco Santander said last Tuesday (Aug 27) that it would spend 1.5 billion euros to repurchase stock as part of a pledge to return about half of its profits to investors. Deutsche Bank indicated recently that it’s reviewing a previous decision to scrap a buyback it had initially planned for later this year. BLOOMBERG
