Surging Lending and Trading Volumes Drive Profit Forecasts for European Banks
After a surge in revenue at U.S. banks, European lenders are expected to follow suit this week when they report second-quarter earnings, powered by gains from higher interest rates and in some cases from trading and investment banking.
Headline year-on-year gains, however, are forecast to be smaller and investors will watch closely for any signs the Iran war is taking a toll by clouding the outlook for Europe.
Goldman Sachs forecasts an 11% jump in second-quarter pretax profit year-on-year for European banks, helped by an increase in loans, improved margins as rates stay higher since the start of the Iran war, rising non-interest income and lower costs.
“We continue to see a ‘better-for-longer’ backdrop for European Banks, underpinned mainly by volume-led revenue growth (with potential upside from the move higher in rates), improving efficiency (with AI emerging as key enabler), and benign asset quality trends against the current macroeconomic backdrop,” Goldman Sachs analysts told clients this month.
Italy’s UniCredit (CRDI.MI) which is moving closer to taking control of Germany’s Commerzbank in one of Europe’s biggest banking battles in decades, and Spain’s Santander (SAN.MC) kick off earnings on Wednesday, followed by France’s BNP Paribas (BNPP.PA), on Thursday.
Next week includes Britain’s Barclays (BARC.L), Germany’s Deutsche Bank (DBKGn.DE) Swiss bank UBS (UBSG.S), and Spain’s BBVA (BBVA.MC).
European banks have been on a more than two-year run of rising profitability, powered by higher lending margins and contained credit losses. This has made banks some of the best performing stocks in Europe, with the EURO STOXX Banks Index (.SX7P), doubling in the past two years to hit its highest level since the 2007-2008 financial crisis.
The recovery follows a decade of weakness and a competitive landscape in which more profitable U.S. rivals have taken market share. The European Commission last week outlined plans to limit political interference in European Union banking mergers and remove obstacles to cross-border banking to aid the sector.
French banks’ trading divisions will also be closely watched after they reported subdued numbers in April.
For Iberian banks, the second quarter “should reinforce the view that the earnings reset from lower rates is largely behind the sector”, Deutsche Bank analysts said. Positive net interest income and strong loan growth mean “the focus is increasingly shifting towards the pace of recovery”.
Reporting by Tommy Reggiori Wilkes in London and Jesus Aguado in Madrid; Additional reporting by Mateusz Rabiega in Gdansk and Mathieu Rosemain in Paris; Editing by Alexander Smith
This article was first reported by Reuters
