In this piece, we will take a look at the ten best European bank stocks to invest in. If you want to skip our overview of one of the most rapidly changing industries these days, then take a look at the 5 Best European Bank Stocks To Invest In.
Comparing the importance of industries before and after the coronavirus pandemic, the macroeconomic shifts ushered in by the virus have made banking today quite different when compared to the pre COVID-19 era. Before the virus struck, banks could charge low interest rates for all types of loans, whether for everyday consumers in the form of short term credit card lending or longer term mega financing for real estate projects. Now, with the benchmark rate in the U.S. sitting at 5.25%, all kinds of debt have become quite expensive; however, bank revenues are also higher as they are able to earn more on an existing portfolio of loan assets.
The link between the Federal Funds Rate, which is the rate that the central bank officials meet regularly to decide, and the everyday consumer using their credit card to buy gas, is due to lending within the banking system. Banks, especially big banks, maintain liquidity for consumer loans by either using their own funds or by borrowing money from each other. The interest rate that a bank can charge for these loans is the Federal Funds Rate, so since all consumer credit purchases are financed by money that the lending bank will recover at a later date, the bank makes credit card payments on the consumer's behalf by either its own cash assets or through arranging from other banks.
As an illustration of this principle, consider the profits of the five largest American Banks by assets as of March 2023. The trailing twelve month revenue of JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corporation (NYSE:BAC), Citigroup Inc. (NYSE:C), Wells Fargo & Company (NYSE:WFC), and The Goldman Sachs Group, Inc. (NYSE:GS) are $154 billion, $101 billion, $79 billion, $81 billion, and $45 billion. Comparing these to the figures for 2019, the last pre COVID-19 year the in the industry, these mark an average growth of 16.6%, as only Wells Fargo is the only major American bank whose revenue is down from 2019.
This revenue growth is coming during a time when the cost of consumer credit has significantly increased. The average APR for all new credit card offers in the U.S. is 24.46% according to LendingTree, Inc. (NASDAQ:TREE). While credit card lending has always had high APRs for the riskiest customers, the data from the online lending marketplace shows that when compared to 2019, the percentage of credit card customers who were charged higher APRs has grown to 35% from 2% in 2019.
These trends are not limited to the U.S. Instead, they extend to all developed economies. The cost of borrowing in the European Union according to data from the European Central Bank shows that whether it's revolving loans, overdrafts, or extended credit card credit, interest rates are at their highest since 2009. Back then, the borrowing cost that includes both corporate and consumer loans stood at 5.08%, and as of October 2023, this sits at 4.97%. Comparing the revenues of the biggest banks in Europe to the latest values and their readings in 2019, all of them, including big ticket names such as UBS Group AG (NYSE:UBS), Banco Santander, S.A. (NYSE:SAN), and Barclays PLC (NYSE:BCS), have demonstrated growth.
Therefore, it's clear that rapid interest rate hikes make today's banking quite important for corporate and consumer well being, and even though the high rates offer lucrative profit opportunities, the turmoil that they create in the money markets is risky. These risks came to light in the form of the banking crisis in the U.S. in March 2023 as well as mega property bond defaults in Europe, along with Europe's biggest banking story that started from the turmoil of the 167 year old Swiss Bank Credit Suisse.
With bank revenues soaring and their loans becoming riskier, we decided to take a look at the best European bank stocks to buy. Some top picks in the list are Janus Henderson Group plc (NYSE:JHG), UBS Group AG (NYSE:UBS), and Deutsche Bank Aktiengesellschaft (NYSE:DB).
Our Methodology
To compile a list of the best European bank stocks, we first made a list of all European banks and asset managers that trade on the NASDAQ and NYSE stock exchanges. Then, they were ranked by the number of hedge funds that had bought their shares during Q2 2023, and out of these, the top European bank stocks were chosen.
Best European Bank Stocks To Invest In
10. Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA)
Number of Hedge Fund Investors In Q2 2023: 8
Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) is a Spanish diversified bank and financial services company headquartered in Bilbao, Spain. Like other banks, its second quarter of 2023 interest income grew by 20% annually, while its net fee income jumped by 69% for a strong set of results in a high rate environment. During the earnings call, management also shared their strategies to deal with historic interest rates in Argentina, which had jumped to 118% as of September 2023.
As of June 2023, eight out of the 910 hedge funds profiled by Insider Monkey had bought Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA)'s shares. Ken Fisher's Fisher Asset Management owns the largest stake among these, which is worth $53 million and comes via 53 million shares.
Along with UBS Group AG (NYSE:UBS), Janus Henderson Group plc (NYSE:JHG), and Deutsche Bank Aktiengesellschaft (NYSE:DB), Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA) is a top European bank stock.
NatWest Group plc (NYSE:NWG) is a British bank that traces its roots back to 1727, making it one of the oldest institutions in the world. Since benchmark rates in the U.K. are also at historically high levels, NatWest Group plc (NYSE:NWG) is also competing with other banks to offer attractive savings rates. To this end, the bank announced a new account in September 2023 that offered an 8% interest rate.
Nine out of the 910 hedge funds part of Insider Monkey's Q2 2023 database have invested in the bank. NatWest Group plc (NYSE:NWG)'s biggest hedge fund investor is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital due to its $3 million stake.
Lloyds Banking Group plc (NYSE:LYG) is the second British bank on our list and one that's even older than NatWest. October 2023 was an important month for the firm since it reported a third quarter of calendar 2023 profit of £1.9 billion which beat analyst estimates.
During this year's second quarter, ten out of the 910 hedge funds profiled by Insider Monkey were Lloyds Banking Group plc (NYSE:LYG)'s investors. Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital owns the largest stake among these which is worth $43.5 million.
HSBC Holdings plc (NYSE:HSBC) is a diversified British bank with more than two hundred thousand employees. The firm is slated to report its third quarter earnings soon, and some key facts to watch out for are its interest income, investment banking profits, and trading revenues to see if they balance out for growth.
Insider Monkey took a look at 910 hedge fund holdings for 2023's second quarter to discover that 11 had held a stake in the company. HSBC Holdings plc (NYSE:HSBC)'s biggest hedge fund shareholder is Jim Simons' Renaissance Technologies through its $66.8 million stake.
Barclays PLC (NYSE:BCS) is a British band headquartered in London, the United Kingdom. September 2023 was a rather historic month for the bank as Morgan Stanley upgraded the stock to Overweight for the first time in more than five years after its previous downgrade in January 2018 according to Bloomberg's data.
As of Q2 2023 end, 15 out of the 910 hedge funds polled by Insider Monkey had invested in Barclays PLC (NYSE:BCS). Its largest stakeholder among these is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital as it owns 16.4 million shares that are worth $129 million.
Janus Henderson Group plc (NYSE:JHG), Barclays PLC (NYSE:BCS), UBS Group AG (NYSE:UBS), and Deutsche Bank Aktiengesellschaft (NYSE:DB) are some European bank stocks that hedge funds are piling into.
