Friday, 22 October 2021

European banks brace for storm as coronavirus hits earnings

Image Credit: Bloomberg News

LONDON: European bank stocks are trading close their steepest-ever discount to US rivals and early signals show that first-quarter earnings may only reinforce the gap.

The continent’s lenders, already in a tough spot before the coronavirus outbreak hit, are likely to detail more worrying news for their embattled investors. In Germany, Deutsche Bank AG may have seen credit trading weigh on its markets revenue while Commerzbank AG probably started to set aside more funds for troubled loans. HSBC Holdings Plc warned of higher provisions, and French bank BNP Paribas has already takin a trading hit.

Italian banks are confronting the prospect a resurgence of troubled loans after spending years decade cleaning up their balance sheets. Switzerland’s big wealth managers may prove an exception, with UBS Group AG and Credit Suisse Group AG already indicating that earnings will rise.

Average prices of European bank stocks compared with their book value are at 50% of U.S. levels, the lowest since a record 48% was reached in 2012 at the height of Europe’s debt crisis.

The continent’s banks are set to report on a period hit by lockdowns that have devastated their corporate clients’ income and whipsawed markets, with uncertainties remaning over the duration of the crisis and the level of government assistance that will be given.

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