Jolted by worries that the US will scale back its commitments, European countries are – or say they are – expanding military spending. And banks are starting to invest and adjust to take advantage of this opportunity. ABN AMRO and Deutsche Bank are among the latest to do so.

Two large European banks have ramped up defence investment efforts, playing to a theme that appears established as Germany and other nations expand military spending.

ABN AMRO is committing €10 million ($11.43 million) to the Keen Venture Partners’ European Defence and Security Tech Fund. This is the first time the Dutch bank has invested into a dedicated European defence fund, it said in a statement earlier this week. Keen Venture Partners is a venture capital firm based in Amsterdam and London.

Also announced this week, the European Investment Bank said it is tripling the intermediated financing available to Europe’s defence-industry suppliers to €3 billion. The EIB is also triggering the new facility through an inaugural agreement with Deutsche Bank, providing long-term liquidity earmarked for security and defence investment projects, it said.

In the ABN AMRO case, Keen’s European Defence and Security Tech Fund, which focuses on early-stage companies within the defence and security technology sector, aims to support companies that provide “dual use” products, the bank said. 

Such products are goods, software and technology that can be used for both civilian and military applications. It concerns solutions in areas such as information superiority, cyber defence, robotics, AI, autonomous systems and space technologies such as securing satellite communications, satellite image analysis, and defence of space assets. 

The Keen fund will target early-stage companies across Europe.

Rising geopolitical tensions and uncertainty have led European governments to increasingly focus on the importance of strategic independence. As such, several initiatives backed by large-scale investment plans valued at more than €1.5 trillion ($1.7 trillion) have recently been announced, both by the European Commission and European governments. These plans should drive higher levels of growth in coming years in key themes and sectors, such as defence, resource independence, industrial resilience, technology and cybersecurity.

“ABN AMRO today announced a pioneering effort to enhance the availability of capital for defence-focused ventures in Europe. With this investment we support early-stage companies within the defence and security technology sector,” Dan Dorner, ABN AMRO’s chief commercial officer, corporate banking, said. “This commitment aligns with ABN AMRO corporate banking’s support to the European sovereignty and defence industry. As a bank, we have noticed an increase in applications for financing as a result. We are open for business where we follow the UN guidelines and our human rights policy.”

Other banks are moving along these lines. Last week, BNP Paribas Asset Management (BNPP AM), the asset manager of BNP Paribas, said it had launched its BNP Paribas Europe Strategic Autonomy fund, a European thematic equity fund.  

The EU's “Rearm Europe” package involves the activation of the national safeguard clause of the Stability and Growth Pact, enabling EU countries to increase their defence spending by an average of 1.5 per cent of GDP, or €650 billion that could be released over the next four years. It also entails a "new instrument" to provide €150 billion in loans to member states to finance joint defence investments in pan-European capabilities. Berlin also proposes to exempt defence from a budget restriction; it will launch an off-budget infrastructure fund of €500 billion over the next 10 years.

The involvement of banking and finance in military spending is controversial, creating tensions in the ESG area, although Russia’s invasion of Ukraine in 2022, and US President Donald Trump’s push for Europe to expand its share of NATO spending, has shifted the debate in European capital.  

At the smaller end of the scale, an investment firm operating in sectors including defence is Edinburgh-based Amati Global Investors. (See an interview here from 2024.)

"Huge spending"
“European aerospace and defence stocks have outperformed the wider market this year after calls for higher national defence spending and less reliance on the historic US shield,” Aliki Rouffiac, portfolio manager, Robeco Investment Solutions, said in a note. “The ‘great rebalancing’ of military strength will be discussed at the upcoming NATO summit in The Hague later this month, where a deal agreeing to a massive rise in defence spending is expected to be endorsed.”

Rouffiac said the summit is set to trigger “huge spending” on defence infrastructure, from the manufacture of armoured vehicles and weapons, to areas such as cybersecurity and medical technology. 

“In equities, the global aerospace and defence sector has enjoyed a double-digit outperformance against the broader global equity market since the beginning of the year, while European stocks have outperformed their US counterparts. The MSCI European Aerospace and Defense index is though highly concentrated; the top five stocks constitute 80 per cent of its market cap,” Rouffiac added.