Banking

Concerns Over European Banks Earnings

Several analysts have raised concerns over earnings this quarter due to external risks such as low economic growth, uncertainty over U.S.-China trade deal, Brexit and a U-turn on major central bank policy towards more easing

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European banks are suffering from years of weak profits, massive fines, ultralow monetary policy and uncertainty surrounding the UK’s exit from the European Union.

Big European banks are set to report their first-quarter earnings starting mid last month and some investors fear that poor report cards could lead to further volatility in the stock markets.

Several analysts have raised concerns over earnings this quarter due to external risks such as low economic growth, uncertainty over U.S.-China trade deal, Brexit and a U-turn on major central bank policy towards more easing.

European banks are suffering from years of weak profits, massive fines, ultra-low monetary policy and uncertainty surrounding the UK’s exit from the European Union. The U.S. banks, on the other hand, especially the big ones like J.P. Morgan and Citi have very strong retail operations that have kept these banks resilient in the face of economic headwinds. U.S. bank earnings have been a mixed bag in the first quarter of this year. But it is yet to be seen how their European counterparts perform.

CREDIT SUISSE

According to data firm Refinitiv, Credit Suisse is expected to report a first-quarter net profit of 793.7 million Swiss francs, as compared to 694 million Swiss francs reported in the first quarter of 2018.

Last year, the Swiss-lender swung back to profit for the first time since 2014. The bank reported a full-year net profit of 2.1 billion Swiss francs ($2.08 billion) for 2018, compared with a 983 million loss in 2017.

The bank’s CEO Tidjane Thiam has led the bank’s turnaround strategy by improving the balance sheet, cutting down on bonuses as well as slashing headcount. In February, Thiam also pointed out a number of external uncertainties weighing on the bank. These include the U.S. trade negotiations and Brexit that have led to “limited visibility” in the months ahead.

However, the bank’s stock is still down nearly 20 per cent over a 12-month period and about 40 per cent since Thiam took over as the CEO in 2015.

UBS

According to data firm Refinitiv, UBS is expected to report a first-quarter net profit of 856 million Swiss francs, as compared to 1.5 billion Swiss francs reported in the first quarter of 2018.

Last month, UBS chief Sergio Ermotti told CNBC that despite the rally in global equity markets, revenues in the first quarter of 2019 was one of the worst in recent years.

Noting especially tough conditions outside the United States, Ermotti said investment banking revenues were down about a third compared to the euphoric first quarter that kicked off 2018. Investment banking is a specific division of banking related to the creation of capital for other companies, governments and other entities.

The bank recently also announced that it is cutting an extra $300 million from 2019 costs after they anticipated investment banking revenues plunged –and wealth management remained under pressure in the first quarter.

UBS stock is down more than 23 per cent over a 12-month period.

Several analysts have raised concerns over earnings this quarter due to external risks such as low economic growth, uncertainty over U.S.-China trade deal, Brexit and a U-turn on major central bank policy towards more easing

BARCLAYS

According to data firm Refinitiv, Barclays is expected to report a first-quarter net profit of 875.6 million pounds, as compared to the heavy losses of 764 million pounds reported in the first quarter of 2018.

Earlier this year, Barclays reported a full-year net profit of £1.4 billion for 2018, swinging back to the black after 2017 losses. The bank also set aside a Brexit provision of £150 million in its 2018 results.

However, the bank remains under pressure from its shareholders over its turnaround strategy. In February, U.S. hedge fund Tiger Global Management dumped all of its stake in Barclays. The New York-based hedge fund had been one of the top 10 investors in Barclays and held a stake of 2.5 per cent.

Barclays’ first-quarter numbers come at a time when the bank is also facing pressure from activist investor Edward Bramson forcing his way on to the board. Bramson’s Sherborne Investors holds a 5.5 per cent stake in the bank. According to Reuters, Bramson wants Barclays to reduce resources allocated to its investment units. Barclays’ shares are down more than 21 per cent over a 12-month period.

DEUTSCHE BANK

According to data firm Refinitiv, Deutsche Bank is expected to report a first-quarter net profit of 130.5 million euros, as compared to €120 million reported in the first quarter of 2018.

Deutsche bankDeutsche Bank has been in the news regularly in the past few months due to speculation over a potential merger with Commerzbank. The merger is seen to be heavily backed by the German government in a bid to create a strong national champion. A joint operation could have a balance sheet of nearly €2 trillion.

In the past few years, Deutsche Bank has made headlines for all the wrong reasons — from settlements with the U.S. Department of Justice to management reshuffles, weak earnings, constant restructuring and the steep stock price falls. Last year, the bank posted its first full-year net profit since 2014.

Shares of Deutsche Bank and Commerzbank are both down more than 35 per cent over a 12-month period.

RBS

An estimate for RBS’ first-quarter net income for 2019 wasn’t available from Refinitiv. However, the bank reported a net profit of 792 million pounds in first-quarter 2018.

The bank slightly beat expectations for full-year profit during its fourth-quarter numbers. However, it has been at the centre of a long legal saga with the Department of Justice (DOJ) over its selling of toxic mortgages in the U.S. in the run-up to the 2008 financial crisis. The lengthy settlement agreement process had prevented the bank from providing dividends to its shareholders. In the summer last year, the bank proposed its first dividend in 10 years. RBS has continued to warn of ongoing economic and political uncertainty and highly competitive mortgage market, along with uncertainty surrounding the UK’s exit from the European Union. In the third quarter of 2018, the bank said it had set aside an impairment provision of 100 million pounds to deal with economic uncertainties, including from the fallout of Brexit. Shares of RBS are down nearly a per cent over a 12-month period.

BNP PARIBAS

According to data firm Refinitiv, BNP Paribas is expected to report a first-quarter net profit of 1.8 billion euros, as compared to €1.5 billion reported in the first quarter of 2018. The bank downgraded its 2020 targets during its fourth-quarter results in 2018. The bank said that the economic environment in Europe supported outstanding loans, despite low-interest rates. However, it lowered its profitability and revenue growth targets for 2020 due to the impact of the market sell-off in the fourth quarter of 2018.

The French bank now hopes to achieve revenue growth of 1.5 per cent per year between 2016 and 2020, down sharply from its previous 2.5 per cent target.

Shares of BNP Paribas are down more than 23 per cent over a 12-month period.

SOCIETE GENERALE

An estimate for SocGen’s first-quarter net income for 2019 wasn’t available from Refinitiv. However, the bank reported a net profit of €850 million in the first quarter of 2018.

SocGen, France’s third-largest bank, announced earlier this month a plan to cut 1,600 jobs, mainly at its corporate and investment banking arm, in a bid to buoy profitability after last year’s poor performance.

The lender had announced it would cut €500 million euros in costs at its corporate and investment banking in early February after its fourth-quarter results were hit by a steep market downturn, which in turn forced it to lower both profitability and revenue growth targets.

Shares of SocGen are down more than 36 per cent over a 12-month period.

The author is News Editor for CNBC International