Europe’s banks are set for a difficult earnings season: Here’s what you need to know

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Several analysts have raised concerns over earnings this quarter due to external challenges 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 U.K.’s exit from the European Union.
CNBC takes a look at the big European banks that are set to report over the next two weeks and what drives their strategy

Big European banks are set to report their first-quarter earnings starting next week 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 challenges such as low economic growth, uncertainty over a U.S.-China trade deal, Brexit and a U-turn on major central bank policy toward more easing.

Daniel Morris, senior investment strategist at BNP Paribas, told CNBC Monday that results among European corporates in the fourth quarter of 2018 was weak.

“It was one of the lowest you had in a long time. We really didn’t notice because we were recovering from the end of December and you had the (Federal Reserve) and so on. Now, we have digested the Fed, I think we have priced in most of the (U.S.-China) trade deal so earnings are going to matter this time. And if we have such minimal beats over expectations, and of course as we know expectations are very low for this quarter, I think markets are not going to be happy with that,” Morris told CNBC’s “Squawk Box Europe.”
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Nervous going into earnings season, strategist says

European banks are suffering from years of weak profits, massive fines, ultra-low monetary policy and uncertainty surrounding the U.K.’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 them resilient in the face of economic headwinds.

CNBC takes a look at the big European banks that are set to report over the next two weeks and what’s been driving their strategy:
Credit Suisse

Credit Suisse is due to report on Wednesday, April 24.

According to data firm Refinitiv, Credit Suisse is expected to report a first-quarter net profit of 793.7 million Swiss francs, compared to 694 million Swiss francs reported in the first quarter of 2018. Looking at the whole of last year, the Swiss lender swung back to profit for the first time since 2014.

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 highlighted a number of external uncertainties weighing on the bank. These included the U.S. trade negotiations and Brexit that have led to “limited visibility” in the months ahead.

The bank’s stock is still down nearly 20% over a 12-month period and about 40% since Thiam took over as the CEO in 2015.
UBS

UBS is set to report its first-quarter earnings on Thursday, April 25.

According to data firm Refinitiv, it’s expected to report a first-quarter net profit of 856 million Swiss francs, 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 announced that it is cutting an extra $300 million from its 2019 costs after anticipating the fall in revenues. UBS shares are down more than 23% over a 12-month period.
Barclays

British-bank Barclays is due to report its first-quarter numbers on Thursday, April 25.

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

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 2.5% stake.

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% 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% over a 12-month period.
Deutsche Bank

German lender Deutsche Bank will report first-quarter earnings on Friday, April 26.

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

Deutsche Bank has been in the news regularly in the past few months due to speculation over a 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 euros.

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 steep stock price falls.

Last year, the bank posted its first full-year net profit since 2014 but shares are still down more than 35% over a 12-month period.

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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