Barclays tipped as bright outlook seen for investment banks in 2026

Broker Keefe, Bruyette & Woods says European investment banks enter 2026 in their strongest position in over a decade after a bumper 2025, forecasting about 11% earnings growth driven by improving investment-banking activity, lower provisions and still-elevated trading; the sector trades cheaply at roughly 8.1x 2027 capital-adjusted earnings, leaving room for re-rating. KBW names SocGen and Barclays as top picks for stronger capital certainty, earnings momentum and distribution potential. It warns of downside risks from macro headwinds, credit losses, shadow-banking shocks, political uncertainty in France and Germany, litigation, cyber threats and AI fatigue, while noting upside from German pension reform, potential regulatory relief and asset optimisation as the industry shifts focus to capital efficiency and long-term growth.

Analysis

Keefe, Bruyette & Woods assesses European investment banks as entering 2026 in their strongest position in over a decade after a bumper 2025, forecasting roughly 11% earnings growth driven by improving investment-banking activity, lower provisions and trading that remains elevated by historical standards. The broker highlights the sector trading at an undemanding c.8.1x 2027 capital-adjusted earnings multiple, implying room for a re-rating if earnings momentum and capital trends persist. KBW singles out SocGen and Barclays as top picks for stronger capital certainty, earnings momentum and distribution potential, reflecting a preference for names with clearer capital and payout paths. Downside risks cited include macro headwinds, potential credit losses, shadow-banking shocks, political uncertainty in France and Germany, litigation, cyber threats and AI hype fatigue, while upside catalysts include German pension reform, potential regulatory relief and continued asset optimisation as the industry shifts focus from earnings durability to long-term capital efficiency and competition.

Key Decisions for Investors

• Consider overweighting KBW’s top picks Barclays and SocGen given the firm’s view on capital certainty, earnings momentum and attractive valuation
• Maintain position sizing discipline and use hedges or stop-losses to protect against macro, credit and shadow-banking shocks as well as political risk in France and Germany
• Monitor trading revenue trends, provisions and regulatory/pension reform developments as near-term catalysts that would validate a sector re-rating from the current ~8.1x 2027 capital-adjusted earnings multiple