In 2026 the spotlight will be on European banks, but only those in good health

The year 2026 seems to begin in Europe with better auspices than 2025. The geopolitical and financial shocks are behind us and we enter the year from a stronger position. "The geopolitical uncertainty, especially at the trade level due to the tariffs issue in the second part of 2025 seems to have been resolved and some factors have turned from negative to positive to the extent that both the economy and the markets have proven to be much more resilient."

Mario Pietrunti, economist at Bnl Bnp Paribas Asset Management, put it this way. "From the second quarter onwards, with the announcement of the German fiscal plan, there has been a repricing in the positive, marking an important step for economic recovery throughout Europe, given that Germany remains the locomotive and today this plan is the policy mix for Europe. High-debt countries are having prudent fiscal policies and this gives stability and rewards. See the case of Italy and Spain where risk premiums have fallen. As for the 'tariffs' issue, what had held back investment in the first months of 2025 was more the uncertainty than the measure itself. Now that the issue has been clarified, the fog has lifted. Then the rate effect from the ECB is having a positive effect on the real economy and this should push consumption and investment up further in 2026'.

In short, Pietrunti is optimistic about the path traced so far in Europe and believes that the potential of the German fiscal plan has not yet been fully grasped by investors, but the effects will be seen both in the long term and in the short term. "It is a complex plan with infrastructure investment projects (railways, motorways and so on) whose effects will unfold in the long term. But there are some shorter-term measures, for example energy price subsidies for companies, which have a more immediate impact'. Then there is another fundamental factor that bodes well for Europe. This is the potential of the adoption of artificial intelligence in companies' production processes, 'a potential that is not yet priced in and that has the potential to increase productivity in Europe by reducing costs. Just as China is doing, which has not incurred the costs of developing artificial intelligence and is merely integrating it, Europe too has found it and could reap huge benefits in terms of efficiency'. However, there is no shortage of risks: on the one hand, bureaucracy and compliance costs, and on the other hand, no one to date knows how to estimate the decidedly underestimated social costs/risks associated with the adoption of artificial intelligence.

In a repositioning of portfolios that is perhaps too unbalanced towards the US, today Europe remains the best alternative, 'in third place I would also say South-East Asia,' Pietrunti further details. Among the sectors that will benefit from the increase in productivity linked to artificial intelligence, I see infrastructure, the construction sector and manufacturing in general. But also pharmaceutical chemicals or all energy-intensive sectors are to be evaluated, as they should benefit from the German infrastructure plan that provides energy subsidies and favours the whole green transition theme. 'We are quite constructive on banks because if the economy recovers,' the manager concludes, 'those who intermediate money flows will benefit in terms of margins at the same rates. Moreover, banks will also return to the centre of consolidation processes'.

Filippo Alloatti, Head of Financials Credit at Federated Hermes, does not think so. He emphasises that, with the EuroStoxx Banks index having forfeited a performance of +64% (data as at 25 November 2025), the bar to be crossed for 2026 is high. "Having said that, barring macroeconomic freezes or stock market collapses due to a sudden deflation of the AI bubble, the competitive positioning of European banks remains enviable," emphasises Alloatti. "ECB rates at 2%, negative ones now distant memory, positively sloping yield curves, tamed inflation, tail effects, for the time being, avoided in trade wars, and a juicy plan to revive the German economy to become the Eurozone's engine again. If one adds a regulatory framework that is hopefully more favourable to economic growth and a good control of costs and risks - some willingly ceded to private credit funds - substantial shareholder remuneration (share buybacks of EUR 50 billion and dividends), the ingredients for an encore in 2026 are all there'. Alloatti also emphasises a selection to be favoured geographically: first and foremost Spain, where the investment revival will continue and the high savings rates, over 10% of disposable income, will drive lending and commissions. Next comes Germany, where credit institutions will play a major role in transmitting the large fiscal stimulus to the moribund domestic economy. 'One might add that the big French banks,' Alloatti concludes, 'look cheap if the legislature holds, otherwise better to look elsewhere. The Swiss banking sector is also going through a difficult phase, somewhere between an existential crisis and rethinking the role of Swiss finance in a fragmented world. To put it in a slogan: healthy banks in a growing economy'.