European banks paint an “uncertain” short-term horizon.

Several large banking institutions have just released their quarterly results. Despite rising rates, recession fears weigh on their outlook.

Is it time to invest in banking stocks in Europe?

? This sector has failed to improve its image with investors since the 2008 financial crisis. a loss of about 75% from the April 2007 peak. No other European sector is doing worse in the same period.

17

Billion euros

According to an estimate by Bank of America analysts, euro-zone factories could see an interest margin increase of € 17 billion within a year.

Some strategists believed the tide had turned in 2021. European banks did indeed register the best performance in the industry last year with a jump of 34.04%driven by the rise in interest rates.

This increase should logically have continued in 2022 with the tightening of monetary policy by the European Central Bank (ECB). By raising policy rates by 50 basis points last week, the Frankfurt bank thus ended years of negative deposit rates that have dented banks’ margins and cost them billions of euros.

In addition, bond yields continued to rise in the first part of the year. The ten-year German Bund, benchmark in Europe, went from -0.186% at the end of December to 1.33% on 30 June 2022. This translates into a better profitability for banks. According to an estimate by Bank of America analysts, cited by Les Échos, euro-zone institutions could see interest margin (i.e. the difference between the interest received by borrowers and the interest paid to savers) increase by 17 billion euros in one year.

Recession

Only then did the Russian invasion of Ukraine completely reshuffle the cards. The surge in energy prices has certainly prompted central banks to change their stance in terms of monetary policy, but it has also resulted in a slowdown in the economy. In the eyes of Goldman Sachs, Eurozone activity is likely to be already in decline.



“The next few months will continue to be difficult. There is reason to believe that things will become even more difficult economically.”

Christian sewing

Deutsche Bank CEO

Gold whoever says recession says fewer bank loans. Households and businesses are less prone to borrowing and, on the other hand, banks are no longer ready to finance any project.

And it’s not going to get better in the short term. “The next few months will continue to be difficult. There is reason to believe that things will become even more difficult economically,” the boss wrote. German bankChristian Sewing, in a note to employees.

However, the first German bank reported this on Wednesdaya 33% increase in its pre-tax profit in the second quarter, at 1.55 billion euros against 1.39 billion expected by analysts. It is even the best second quarter since 2011, according to the company. But the cautious statements of its CEO and the downward revision of some annual targets were not well received by the equity market: Deutsche Bank stock recorded one of the largest falls of the session among the Stoxx Europe 600.

Dichotomy

It is not the only European bank to have dampened investor hopes in recent days. Tuesday, UBS – the first major bank presented quarterly results in Europe – presented a pre-tax profit of $ 2.61 billion for the period between April and June, while the consensus was 3.12 billion. The fault of the decline in the financial markets which severely impacted the income of his investment bank. Unsurprisingly, its stock price plunged 9.44% that day.



“The global economy is facing unprecedented challenges and a lot of uncertainty”

Andrea Orcel

UniCredit Chief Executive Officer

Swiss credit for his part he unveiled “disappointing” figures this Wednesday, reciting a pre-tax loss of 1.17 billion Swiss francs. This caused an upheaval within the Swiss bank. He announced the appointment of Ulrich Körner as CEO replacing Thomas Gottstein and the initiation of a radical strategic review.

rare exception, UniCredit. The Italian establishment has increased its full-year profit forecast after posting a 66% increase in the second quarter, to 1.5 billion euros excluding the impact of Russia. “The global economy is facing unprecedented challenges and a lot of uncertainty,” CEO Andrea Orcel warned.

Banks that have yet to present their results – like Bnp Paribas Where is it KBC – there is a strong risk of evoking this dichotomy between good results and not very encouraging prospects. To the point of scaring investors again? For now, the sector is displayed a loss of around 13% from the beginning of the year.

The summary

  • In Europe, the banking sector has failed to improve its image with investors since the 2008 financial crisis. a loss of approximately 75%.
  • Several European banks have presented quarterly results in recent days. Mix up figures above expectations and disappointments.
  • But everyone talks about ita “difficult and uncertain” macroeconomic context for the coming months.
  • What else to keep investors away? For now, the sector is displayed a loss of around 13% from the beginning of the year.

Leave a Comment