Serial shareholder value creator
BAWAG as had sector leading returns has successfully transformed itself into one of the most cost efficient and low asset quality risk banks in Europe
BAWAG Group: The Transformer: BAWAG spins straw into gold
European bank "bolt on" consolidator with a digital focus and a track record of adding value
VIE:BG
€106.30-1.94%
Updated: Jun 04, 2025
Financials & Real Estate
largeeurope
Bull & Bear Case
An overview of the main reasons to invest and the key risks involved.
Bull Case
A rare European bolt-on bank consolidator
Has made a name for themselves with 14 deals under their belt since 2015 and having closed two substantial acquisitions in past 6 months.
Dry powder optionality sets up next EPS leg
Has proven to be one of the better capital allocators in Europe - adeptly balancing being both a consolidator and a capital manager
Bear Case
Exposed to macro risk
The European bank sector is highly exposed to economic downturns, credit market stress, sovereign & geopolitical turmoil and regulatory & taxation risks
Consolidators like BG need to deliver on targets
Being a consolidator brings with it the duel pressure of having to create value on completed deals while continuing to find the next good deal.
ECB interest rate policy risk
Investors are grappling with what lower ECB policy rates mean for both sector earnings & valuation
Executive Summary
Bawag Group is an Austrian listed bank that since its IPO in 2017 has transformed itself into an SME and retail focused bank that focuses on the DACH region (Germany, Austria and Switzerland) and the Netherlands. Via extraordinary levels of tech spend investment and targeted acquisitions they have become the most digitally capable bank in Europe. Financially, they are one of the highest ROE banks - skilled at converting "dry powder" surplus capital generated into either accretive M&A or returning generous amounts of capital to shareholders. In the past six months they have closed on two acquisitions which they expect will materially uplift earnings power and reset their war chest to use again to pursue acquisitions or special capital management.
Investment Thesis
Overview of buy and sell case of the business.
Why Invest?
Key pieces of information about the business that you need to know about.
Serial shareholder value creator
Since their IPO in 2017, BAWAG has transformed itself into one most profitable banks in Europe, posting annual returns on tangible capital >20% (26% in 2024). This transformation has included: improved expense efficiency (cost income from 47% to 33%); a loan mix shift to SME/retail clients and lower risk secured lending; and becoming a high asset quality bank (with non-performing loans <1%). Their niche geographic focus on (DACH/NL) countries is attractive, as most equity investors have limited exposure to these economies. Looking forward, BAWAG expects to deliver >20% RoTCE even if the ECB reduces policy rates further.
A rare bank "bolt-on" bank consolidator
BAWAG has taken advantage of the fragmented state of the European banking market to create idiosyncratic value. Since 2015, they have closed 14 deals = 11 SME/retail banks in DACH/NL, 1 in the US and 2 wind-down portfolios in Western Europe. They have cranked up M&A over the past six months, spending EUR 600 mil in the aggregate on two deals that they project together could uplift the group's pretax earnings power by ~35% by 2027.
Dry powder optionality sets up next EPS leg
BAWAG prioritizes being a proactive steward of capital, in terms of protecting capital (via loan book de-risking) and by deploying surplus capital into M&A or capital management. In terms of capital management, since their IPO, they have returned 45% of their market cap (or EUR 3bn) to shareholders. Their 55% dividend payout is equivalent to a 7% dividend yield. The optionality of what comes next is back on the table as the bank expects its surplus capital to expand dramatically (375 bps of annual CET1 generation in 2025-2027) to the point of having EUR 1bn of excess capital to play with by YE 2027.
Catalysts
The key events that could drive investment opportunities and shift markets.
Synergies and enhanced earnings power from recent acquisitions
The next 12-24 months are about integrating/creating value from the two recent deals (Knab and Barclays Consumer Bank Europe) and about the company rebuilding its surplus capital position with an eye towards the next capital allocation opportunity.
More M&A or money returned to shareholders as excess capital builds
Their surplus capital is expected to expand substantially (annual CET1 expansion to expand tp ~ 375bps a year). Future acquisitions or a share buyback are both on the table as the company plans to make use of excess capital above a 13% CET1 ratio.
Further stock re-rating for high ROE, low risk, high DPS yield stock
BAWAG's valuation, both absolute and relative to the sector, could re-rate if they achieve targets for their current business and create value from redeploying surplus funds in line with what they have done in the past.
Key Risks
Key pieces of information about the business risks that you need to know about.
Exposed to macro risks
The European bank sector is exposed to the full gauntlet of macro risk, ranging from recessions, to credit-driven blow-ups, to sovereign & geopolitical turmoil, to regulatory overhang. Fortunately, this sector has been the beneficiary of several receding macro risks = reduced sovereign risk across periphery Europe and a possible pending solution to the Ukraine war. The Euro banks sector has so far also managed to shrug off the building dark clouds brought on by the current trade/tariff war and US recession fears. More specific to BAWAG, it is worth monitoring how costly (in potential refunds) the ongoing investigation into their processing fees on Austrian consumer loans could end up being.
Consolidators like BG need to deliver on targets
Being a consolidator brings to Bawag both the execution risk of delivering promised value on their completed deals and the pressure to find more good deals that can move the needle. Case and point - contribution expectations from BAWAG, two recent deals are very substantial and while investors await news on where the company will utilize current surplus capital on additional acquisitions.
ECB interest rate policy risk
The European bank sector has been one of the best in global equity markets since the ECB began raising rates in July 2022. Investors are now digesting the headwinds to bank revenue growth from lower ECB policy rates (down from 4% peak to current 2.5% and headed lower) and also what it means for bank stock valuations (which are not expensive relative to their US banking peers).
Follow the Experts
Quickly navigate key insights from industry experts and leverage their knowledge and market intelligence.
Expert Insights
article
"If we undertake any M&A activity it will be at the right terms at the right price and will be additive to our strategy"
Expert Insights
article
"Cross border mergers of banks that can actually compete at scale, at a depth and at range with other institutions around the world are in my opinion desirable"
Expert Insights
Expert Insights
article
"The combination of regulatory demands for more capital for larger institutions, plus deposits not moving freely between countries, makes large transactions very difficult"
Investor Materials
Access the most recent investor updates published by the company.
Key Resources
BAWAG Group 2024 Results
ArticleAnnual Report 2024
PDFPRE-EARNINGS CALL Q1 2025
PDFExternal Insights
A curated collection of third-party content relevant to the company and sector to help inform your investment decision.
The stock
Where next for European banks?
ArticleWe explore how monetary policy divergence and sector consolidation are reshaping European banks, while creating potentially compelling opportunities for active investors.
Team
Meet the experienced professionals leading our organization
Anas Abuzaakouk
Enver Sirucic
Sat Shah
David O'leary
What the Pro's Are Asking
Here are the questions that professional investors are asking before making an investment decision.
Why does BAWAG target such a unique geographic focus?
BAWAG has transformed from an Austrian bank (with a post office network) in its pre-IPO days to a bank focused 90% on the DACH region (Germany, Austria, Switzerland) and the Netherlands. As a tactical consolidator, BG has been able to take advantage of these fragmented banking markets and the fact that many large European financial institutions have consumer subsidiaries that lack critical mass in DACH/NL countries. These countries are all well suited to their retail/SME focus, with both low unemployment and high levels of home ownership in each market.
How is BAWAG situated for the onset of digital banking?
Since its IPO, BAWAG has emphasized becoming a bank with a concise physical branch network and strong digital capabilities, consistent with its current 80 advisory branches that are capable of servicing a loan book of > EUR 50 billion. They spend 30% of their annual opex budget on technology spend and 90% of their bank products are digitized. The recent acquisition of Knab in the NDL, a digital platform for mortgage lending/deposits, should take their digital competency up another level.
What is BAWAG's exposure to commercial real estate (CRE) lending?
Commercial real estate is now ~11% of their proforma loan book, after previously being as high as 17% in 2022. This portfolio has a decent risk profile, with a 1.5% NPL ratio and an average LTV of 50% and a composition that is >70% from residential + industrial logistics properties. Within their CRE portfolio, the US exposure has grown to 60% of loans, again with a tilt towards residential + industrial/logistics real estate.