After a bumper 2025, European investment banks are entering 2026 in their strongest position in over a decade, according to a fresh sector outlook from broker Keefe, Bruyette & Woods, which has Barclays PLC (LSE:BARC) as one of its top picks.
Analysts expect solid earnings growth of 11% this year, driven by improving investment banking activity and lower provisions, while trading remains elevated by historical standards.
Valuations still look “undemanding,” with the sector trading at just 8.1x 2027 capital-adjusted earnings, leaving room for re-rating—provided there are no major hiccups.
KBW’s top picks remain SocGen (GLE) and Barclays, saying these are favoured for "stronger capital certainty, earnings momentum, and distribution potential".
But risks loom, analysts warn, cautioning about macro headwinds, potential credit losses, and shadow banking shocks.
Political uncertainty in France and Germany could also rattle markets, while litigation, cyber threats, and AI hype fatigue add to downside risks.
Still, tailwinds like German pension reform, potential regulatory relief, and asset optimisation provide upside. The sector’s narrative is shifting, KBW argues, from questions over earnings durability to long-term capital efficiency, growth, and competition—marking the start of the “next phase” in the re-rating story.