European Banks to Return 120 Billion Euros to Shareholders in 2023

Title: European Banks Poised to Distribute Record €120 Billion to Shareholders Amid Profit Surge

European financial institutions are poised to distribute an unprecedented sum to their investors, with analysts predicting a total of €120 billion ($130 billion) in dividends and share buybacks for the year. This surge in payouts is attributed to the profits garnered during a period of elevated interest rates.

The Bank of Ireland is the latest in a series of banks to announce increased returns to shareholders, following the lead of BNP Paribas, Deutsche Bank, and Santander. UBS in Switzerland has committed to resuming its buyback program, while Italy’s state-owned Monte dei Paschi di Siena is set to issue its first dividend in over a decade.

UniCredit stands out with its announcement to distribute all of its 2023 profits, amounting to €8.6 billion, including €5.6 billion allocated for buybacks. The bank also plans to share 90% of its net profit for 2024.

Analysts at Bank of America estimate that European banks will pay out nearly €80 billion in dividends for 2024, with additional buybacks pushing the total capital returns to shareholders to a record high. Over the next 15 months, banks are expected to have paid out €172 billion, which is about 17% of their market capitalisation.

The profitability boost comes after years of low share prices due to near-zero interest rates. Now, as banks benefit from the wider gap between lending rates and deposit costs, they are seeing an uplift in their share prices. Executives are increasingly favoring dividends and buybacks as means to deploy excess capital.

UBS analysts project that the top 50 European banks will have a dividend yield of 7.3% in 2024, a significant increase from 5.8% in 2022. Despite this optimistic forecast, some investors remain cautious due to the potential for falling interest rates and a less robust economic outlook.

While bank capital returns are expected to reach record levels this year, analysts anticipate a reduction from these highs starting next year. Bank of America predicts distributions for 2025 will range between €110 and €120 billion, indicating a more conservative approach to buybacks moving forward.

As European banks navigate this period of financial prosperity and shareholder generosity, the broader economic context continues to shape investor sentiment and future payout strategies.

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