European banks lagged US peers for more than a decade after the Global Financial Crisis, with weaker profitability, heavier regulation, and slower recoveries weighing on returns. Since roughly 2020, that gap has narrowed as European institutions rebuilt capital, improved asset quality, and lifted returns on equity.
This multi‑year catch‑up aligns with prior global leadership cycles in which long‑term laggards later led for extended periods. International equities, for example, outperformed US benchmarks for much of the 1970s and again during 2000‑2009, following a prior decade of US dominance.
Within European banking, large diversified names such as Banco Santander (SANe), Banco Bilbao Vizcaya Argentaria (BBVAe), BNP Paribas (BNPp), and UBS Group (UBS) sit at the center of the potential regime shift. Their valuations still trade at discounts to many US banks on traditional metrics like price‑to‑book and price‑to‑earnings.
Historical leadership reversals, such as the rotation toward non‑US markets captured by ETFs like EFA and EEM versus SPY, typically occurred after prolonged underperformance and valuation compression. In those episodes, once relative performance turned and persisted for several quarters, trends often extended over multi‑year horizons, although the pattern remained conditional rather than guaranteed.
Terminology
- 01Price-to-book: Valuation ratio comparing a company’s market value to its accounting book value.
- 02Price-to-earnings: Valuation ratio of a company’s share price divided by its earnings per share.
References
- https://www.hwcm.com/2025/12/23/european-and-uk-banks-capital-discipline-recovery-and-the-case-for-re-rating/
- https://www.janushenderson.com/en-us/advisor/article/the-underappreciated-strength-of-european-banks/
- https://tabinsights.com/article/european-banking-at-an-inflection-point
- https://www.gisreportsonline.com/r/eus-banking-sector/
- https://www.bairdassetmanagement.com/insights/2024/06/a-world-full-of-opportunities