Get ready for a major shift in the banking world: British banks are poised to join their European counterparts in a bold move to raise profit targets, signaling a wave of optimism—but also potential risks. And this is the part most people miss: while higher targets might seem like a win, they could set the stage for investor disappointment if economic conditions take a turn. Here’s the full story.
In the heart of London’s Canary Wharf, the financial pulse is racing. Major British banks like HSBC and NatWest are gearing up to follow in the footsteps of their European rivals by lifting their profit targets when they unveil their annual earnings in the coming weeks. But here’s where it gets controversial: while this move reflects confidence in sustained growth, it also raises questions about whether banks are setting themselves up for a fall if the economic landscape shifts.
HSBC, for instance, is expected to boost its return on tangible equity (ROTE)—a key profitability metric—beyond its current "mid-teens or better" guidance. Meanwhile, NatWest is likely to raise its 2027 target from 15% to as much as 17%. Barclays, which previously projected a 12% ROTE by 2026, is also expected to sweeten its outlook. Analysts suggest Barclays and HSBC could even push their targets up by 200 basis points, with earnings reports due on February 10 and 25, respectively.
Across the continent, European banks have already hiked their profit goals, betting on higher margins for years to come. This optimism stems from favorable interest rates, growing loan income, and tighter cost control. Yet, it’s not all smooth sailing. Aiming higher comes with risks, particularly if economic growth stalls, leaving investors feeling shortchanged.
Take Lloyds Banking Group, for example. Analysts predict it could lift its ROTE target to 18.5% by 2028, up from this year’s goal of over 15%. But even as banks like Lloyds and Deutsche Bank prepare to report earnings this week, kicking off the European banking season, the question lingers: Are these ambitious targets sustainable, or are banks setting themselves up for a fall?
European banking stocks have soared since early 2024, more than doubling and outpacing U.S. banks by a wide margin. Spanish giants Santander and BBVA have led the charge, growing income while keeping costs in check. JPMorgan forecasts BBVA’s ROTE could hit 26% by 2028, while Santander might target 19–20% by the same year. Deutsche Bank has already set a 13% ROTE target for 2028, up from 10% in 2025.
But not all banks are riding this wave. French lenders like Societe Generale, BNP Paribas, and Credit Agricole may struggle due to higher costs and fierce domestic competition. Meanwhile, investment banks like Deutsche, Barclays, and UBS are poised to benefit from volatile markets and corporate deals, echoing the bullish sentiment seen on Wall Street.
Peter Rothwell, head of banking at KPMG UK, sums it up: "UK banks have enjoyed longer-than-expected earnings resilience, fueled by higher interest rates, strong credit quality, and cost control." Yet, the bigger question remains: Is this optimism justified, or are banks overreaching?
As earnings season unfolds, one thing is clear: the banking sector is at a crossroads. While higher profit targets signal confidence, they also invite scrutiny. What do you think? Are banks making a smart move, or are they setting themselves—and their investors—up for disappointment? Share your thoughts in the comments below!
