By Joe Wallace

European stocks are on track for fresh all-time highs, powered by the sector that was long the region's Achilles heel.

-- Banks are responsible for much of the year's 15% advance in the Stoxx Europe 600 and have extended gains after a strong batch of recent earnings. The pan-continental index rose Wednesday, on pace to close at a record high if it holds gains.

-- The sub-index tracking bank stocks is up 57% in 2025. The continent's second-biggest by assets, Santander, is one of several banks whose shares have more than doubled this year.

-- Dutch lender ABN Amro is among Wednesday's best-performing stocks. Its shares are up more than 4% after it agreed to buy NIBC Bank from Blackstone to boost its domestic retail-banking business.

After a long fallow patch, European bank stocks took off in 2022, when rising interest rates boosted earnings. What changed this year is that their valuations-or the price investors are willing to pay for each euro or pound earned-have also risen sharply.

Analysts attribute that to investors' growing confidence the banks can churn out profits and return money to shareholders, even if interest rates come down. Shares in banks turning themselves around, such as Société Générale, or exposed to Germany's stimulus spending, such as Deutsche Bank, have shot up especially fast. Commerzbank, which ticks both boxes, has done best of all.

There are risks. Shares of banks with big investment banks and U.S. businesses recently fell when a spate of alleged frauds raised worries about the health of credit markets. This week, Morningstar analysts said banks' valuations, which are at their highest since 2008, don't reflect vulnerabilities, including the sector's interconnectedness with private markets.

Defense companies such as Germany's Rheinmetall and Sweden's Saab have also surged this year as Europe re-arms to face off the threat from Russia, though they haven't contributed to the market's gains in recent days.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

(END) Dow Jones Newswires

November 12, 2025 06:36 ET (11:36 GMT)

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