Europe's banks under investor pressure to keep earnings growth alive
European banks report Q3 earnings this week and next
Focus on fading interest rate boost, cost controls
UniCredit move stirs M&A chatter
By Sinead Cruise
LONDON, Oct 21 (Reuters) -Europe's biggest banks are healthier than at any point since the 2008-09 financial crisis, but investors want reassurance that they can trust their longer term earnings power as interest rates fall.
Bank share prices .SX7P have broadly delivered a double-digit rise this year, driven by stock buyback programmes made possible by years of capital accumulation, restructuring, cost cuts and supportive central bank policy, which boosted their profits.
Deutsche Bank DBKGn.DE, Lloyds LLOY.L and Barclays BARC.L will kick off third-quarter earnings reporting this week, while UBS UBSG.S and HSBC HSBA.L will be among those reporting next week.
The numbers are expected to show continued profitability, with robust investment banking activity offsetting squeezes on margins and weak demand for loans among consumers and businesses.
But investors want more. Besides looking for evidence of asset quality resilience, they are seeking sharper strategy, lower costs and the potential to outperform in a low growth global economy.
Deal-making has captured the imagination of bank boards in the last three months. BNP Paribas BNPP.PA bought AXA Investment Managers AXAF.PA and UniCredit CRDI.MI raised its stake in Germany's Commerzbank CBKG.DE, stirring chatter on cross-border consolidation.
"Estimates suggest that up to 600 billion euros ($652 billion) in net interest income could be at risk in the first half of 2025 if the European Central Bank cuts rates as expected," Filippo Maria Alloatti, Head of Financials for Credit at Federated Hermes, told Reuters.
"Management teams are proactively taking measures ... exploring bolt-on acquisitions in asset management, wealth management and even niche fintech opportunities," he said.
Britain's NatWest NWG.L swooped on Metro Bank's MTRO.L residential mortgage book while media reports suggest HSBC's HSBA.L new CEO Georges Elhedery may make a much bigger mark on the lender's structure than previously thought.
Sales by governments of their crisis-era stakes in banks remove one hurdle to deal-making, credit rating firm Scope Ratings believes, although others remain.
"ESCAPE VELOCITY"
Analysts at McKinsey said executives needed to attain "escape velocity" to distinguish themselves from peers and increase appeal to investors.
To maintain the current return on tangible equity margins, banks will need to cut costs 2.5 times as fast as revenues decline, McKinsey said in its Global Banking Annual Review 2024.
Just 14% of global banks have a price-to-book ratio above 1 and a price-to-earnings ratio of more than 13 - more than four times lower than companies in all other industries, McKinsey said.
Philippe Bodereau, head of credit research at PIMCO, said Europe's banks were separating into two camps; those with potential to mirror U.S. peers with consistent, double-digit returns on equity, and those stuck at depressed single-digit levels.
"I think those institutions should be doing a fair bit of strategic soul searching," he said.
INVESTMENT BANKING BOOST
UBS UBSG.S and Barclays BARC.L are expected to report a third quarter bounce in investment banking revenues, particularly in equities and advisory fees, where U.S. rivals JP Morgan JPM.N, Morgan Stanley MS.N and Goldman Sachs GS.N outshone expectations.
Like U.S. peers, European banks are not expected to show a marked deterioration in asset quality, and fears have waned that commercial real estate (CRE) could dent capital, ratings agency Moody's said.
A stress test of the 21 European lenders with the highest CRE exposure relative to Common Equity Tier 1 (CET1) capital showed all would remain above minimum CET1 capital thresholds, even under a scenario of severe loan quality shock.
Analysts at HSBC remain on guard for negative surprises in net interest income, a measure of profitability that reflects the difference between what a bank earns on loans and how much it pays depositors.
HSBC prefers asset gathering stocks like Credit Agricole CAGR.PA and KBC KBC.BR over BNP Paribas BNPP.PA and ING ING.AS, where net interest income (NII) momentum was seen weakest.
UK domestic lenders Lloyds and NatWest NWG.L should report continued third quarter growth in NII, Barclays analysts said, boosted by an improving outlook for loan growth, particularly mortgages.
Concerns about a possible rise in bank taxation in the UK Budget on Oct. 30 is weighing on sentiment.
But shares in domestically-focused lenders could bounce by more than 5% if the government opts to leave current arrangements intact, UBS said.
($1 = 0.9214 euros)
European banks outperform https://reut.rs/48ipHUo
Government stakes in Europe's banks https://reut.rs/3YCizz3
Reporting By Sinead Cruise
Additional reporting by Tommy Reggiori Wilkes, Dhara Ranasinghe and Elisa Martinuzzi; Graphics by Tom Sims; editing by Barbara Lewis
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إخلاء المسؤولية: تتيح كيانات XM Group خدمة تنفيذية فقط والدخول إلى منصة تداولنا عبر الإنترنت، مما يسمح للشخص بمشاهدة و/أو استخدام المحتوى المتاح على موقع الويب أو عن طريقه، وهذا المحتوى لا يراد به التغيير أو التوسع عن ذلك. يخضع هذا الدخول والاستخدام دائماً لما يلي: (1) الشروط والأحكام؛ (2) تحذيرات المخاطر؛ (3) إخلاء المسؤولية الكامل. لذلك يُقدم هذا المحتوى على أنه ليس أكثر من معلومات عامة. تحديداً، يرجى الانتباه إلى أن المحتوى المتاح على منصة تداولنا عبر الإنترنت ليس طلباً أو عرضاً لدخول أي معاملات في الأسواق المالية. التداول في أي سوق مالي به مخاطرة عالية برأس مالك.
جميع المواد المنشورة على منصة تداولنا مخصصة للأغراض التعليمية/المعلوماتية فقط ولا تحتوي - ولا ينبغي اعتبار أنها تحتوي - على نصائح أو توصيات مالية أو ضريبية أو تجارية، أو سجلاً لأسعار تداولنا، أو عرضاً أو طلباً لأي معاملة في أي صكوك مالية أو عروض ترويجية مالية لا داعي لها.
أي محتوى تابع للغير بالإضافة إلى المحتوى الذي أعدته XM، مثل الآراء، والأخبار، والأبحاث، والتحليلات والأسعار وغيرها من المعلومات أو روابط مواقع تابعة للغير وواردة في هذا الموقع تُقدم لك "كما هي"، كتعليق عام على السوق ولا تعتبر نصيحة استثمارية. يجب ألا يُفسر أي محتوى على أنه بحث استثماري، وأن تلاحظ وتقبل أن المحتوى غير مُعدٍ وفقاً للمتطلبات القانونية المصممة لتعزيز استقلالية البحث الاستثماري، وبالتالي، فهو بمثابة تواصل تسويقي بموجب القوانين واللوائح ذات الصلة. فضلاً تأكد من أنك قد قرأت وفهمت الإخطار بالبحوث الاستثمارية غير المستقلة والتحذير من مخاطر المعلومات السابقة، والذي يمكنك الاطلاع عليه هنا.
