European bank stocks are having their best year ever. The EURO STOXX Banks Index has surged 76% in 2025, surpassing even the legendary 74% rally of 1997 and cementing the sector's remarkable comeback from the doldrums of the past decade.

The gains have been widespread, with multiple lenders more than doubling their share prices in a single year.

The Standout Performers

Leading the charge are some of Europe's most storied—and previously troubled—institutions:

  • Société Générale: +139%
  • Commerzbank: +136%
  • Banco Santander: +110%
  • ABN Amro: +102%
  • BBVA: +101%
  • Deutsche Bank: +92%
  • Bank of Ireland: +84%

These aren't speculative meme stocks—they're pillars of European finance, collectively worth hundreds of billions of euros.

What's Driving the Rally

Higher Interest Rates: After years of negative rates that crushed bank profitability, the European Central Bank's tightening cycle has restored net interest margins. Banks are finally earning meaningful spreads on their lending.

Capital Returns: European banks have used their windfall profits to shower shareholders with dividends and buybacks. This has attracted yield-hungry investors in a world where safe returns remain scarce.

Improved Asset Quality: Fears of a loan default wave following the pandemic and energy crisis never materialized. Credit quality has remained strong, allowing banks to release provisions and boost earnings.

Valuation Catch-Up: European banks traded at steep discounts to book value for years. The rally represents a re-rating as investors recognize these aren't the same fragile institutions of the 2008-2012 era.

The 2026 Outlook

Analysts remain constructive heading into the new year, though the focus is shifting. Goldman Sachs analyst Chris Hallam notes that investor attention will move "away from rates and credit towards growth and efficiency."

Goldman's top picks by potential upside include:

  • UBS Group: 34% upside
  • UniCredit: 29% upside
  • Banco BPM: 29% upside
  • Julius Baer: 25% upside

Risks to Watch

European banks aren't without challenges:

  • ECB rate cuts could compress margins again
  • Economic slowdown in Germany weighs on loan growth
  • Geopolitical risks from the Russia-Ukraine conflict persist
  • Competition from digital challengers intensifies

The Bottom Line

European banks' record year is a reminder that contrarian bets can pay off spectacularly. Institutions left for dead a few years ago have become market leaders. For investors who missed the 2025 rally, the question is whether the sector can sustain momentum—or whether 76% gains were the easy part.