European Equity Strategy: Banks: Earning(s) our interest

Research evidence excerpt

European Equity Strategy: Banks: Earning(s) our interest

emarkable; the company and balance-sheet evidence is not.

The earnings story is changing, not ending

The first leg of the Banks earnings cycle was straightforward. Rising rates widened net The rate trade is ending. The

interest margins, deposit betas remained contained and analysts could not upgrade earnings cycle is not. Volumes, fees

forecasts quickly enough. Cost discipline extended the run, with banks beating expense and capital markets are replacing

expectations in nine of eleven quarters. Neither driver is now as clean. The latest part of the NII windfall.

aggregate quarter produced only a 90bp net interest income beat, while costs missed in

both 4Q25 and 1Q26.

That does not mean the revision cycle is over. It means its composition is becoming more

balanced. Non-interest income beat by 2.7% in 1Q26, capital-markets activity remains

robust and loan growth is contributing more meaningfully to revenues. Faster pass-

through markets such as Ireland, Italy, Greece, Spain, Portugal and Sweden absorbed

the pain from lower rates quickly. Our Banks analysts expect all of them to return to

growth by the third quarter. As that happens, a broader top-line recovery should pass

through a largely fixed cost base.

Our Banks analysts forecast approximately 11% earnings growth this year and close to

15% next year. They are around one percentage point above aggregate consensus for

2026 and further ahead for 2027. Estimates for next year have already risen by roughly

4-5% year-to-date, around half the upgrade delivered during the whole of last year.

Revisions paused around first-quarter results and the Iran conflict, when management

teams understandably left guidance unchanged, but resumed in June. The sector team