Analysis-Old meets new economy: AI boom to supercharge European banks' rally

LONDON, Dec 15 (Reuters) - After a stellar 2025, investors expect shares successful European banks to support heading higher successful 2026, supported by beardown net and, crucially, outgo savings stemming from artificial intelligence.

As fears of a recession and involvement complaint cuts from the European Central Bank person subsided, investors person turned ​even much affirmative towards European banks, revising up their expectations for the sector, contempt a analyzable backdrop.

Meanwhile, AI has emerged arsenic a caller unit drafting investors to ‌European lenders' shares, partially due to the fact that a dearth of exertion companies successful the portion has forced galore to hunt for AI beneficiaries successful old-economy markets.

Banks person started to usage AI to amended operational ratio and fraud detection, arsenic ‌well arsenic to trim unit costs.

"European banks could beryllium a existent beneficiary of AI," said Helen Jewell, main concern serviceman for cardinal equities astatine BlackRock, the world's largest plus manager, with astir $12 trillion nether management.

"A batch of the AI communicative has been focused connected the gross winners, but we besides cognize that erstwhile it comes to AI, determination is simply a beneficiary from the outgo winners," she said astatine a property event.

UBS said successful a enactment to investors they spot AI arsenic a cardinal root of imaginable upside to banks' near-term valuations and longer- word earnings.

But ⁠that comes with risks.

Warnings implicit AI-related exuberance and the risks ‌of a dot-com benignant bust person travel from assorted sides, including the International Monetary Fund and the Bank of England.

And risks aren't lone AI-related.

The ECB said euro portion banks look 'unprecedentedly high' hazard of shocks including geopolitical tensions, shifting commercialized policies, climate-related crises and adjacent a dollar compression for ‍banks exposed to the volatile U.S. currency.

Yet investors person snapped up slope stocks successful earnest. Societe Generale shares person rallied 140% this year, Commerzbank 125% and those successful Barclays roseate astir 70%. An scale of European slope stocks is up much than 60%, connected apical of the 25% summation successful 2024 and much than 4 times amended than the cookware European index.

Investors besides presumption them arsenic comparatively ​cheap, peculiarly erstwhile compared with U.S. banking shares. European slope stocks presently commercialized astir 1.17 times their price-to-book value, immoderate 40% beneath their 2007 highest and beneath the 1.7 ‌times of their U.S. rivals, according to LSEG data.

EARNINGS EXPECTATIONS JUMP

In presumption of costs, Goldman Sachs said successful a enactment that costs would turn astatine a compound yearly complaint of lone 1% betwixt 2025 and 2027. The U.S. slope besides sees ratio continuing good into 2026, with banks' cost/income ratios improving by 130 ground points twelvemonth connected year, meaning companies are expected to walk little to make income.