Youtube·2025-12-10 10:02Core Insights - The banking sector has experienced a strong decade driven by profitability uplift post-COVID, sustainable profitability at a 14% return on tangible equity, and ongoing earnings revisions [1][2][3] - Loan growth has shown consistent improvement over the past 18 months, with expectations of continued growth aiding valuations into 2026 [4] - The sector is currently valued slightly above the long-term average, with expectations for progress towards double-digit valuations due to ongoing earnings growth [6] Profitability and Rerating - Profitability in the banking sector has increased significantly, leading to a rerating that began in 2024 and has intensified in the current year [2][3] - The expectation of ongoing earnings revisions supports a bullish outlook for the sector [3] Growth Trends - Loan growth is highlighted as a key comeback story, with a current growth rate of 3% expected to positively impact valuations [4] - The sector is perceived as having previously low growth, but recent trends indicate a shift towards more robust growth opportunities [3] Valuation and Market Position - Current valuations are at 9.5 times, slightly above the long-term average, with historical peaks around 12.5 times [6] - Continued earnings growth and upgrades are anticipated to drive valuations higher [6] M&A Activity - European banks are well-capitalized, presenting opportunities for management teams to consider various growth strategies, including M&A [7][8] - There is a growing confidence among management teams regarding M&A, with investor support increasing for deals that are typically earnings accretive [8]