Europe picks up where Wall Street left off this week as the region’s biggest banks roll out their first-quarter earnings.
(Bloomberg) — Europe picks up where Wall Street left off this week as the region’s biggest banks roll out their first-quarter earnings.
The names that dominated last month’s headlines will still be foremost in investors’ minds, as lenders reveal how they weathered the turmoil surrounding the collapse of three US banks as well as the spectacular demise of Credit Suisse Group AG and its subsequent rescue by UBS Group AG. Bank stocks have rebounded from the shock waves that sent the sector tumbling 14% in March to be the second-strongest gainer on the Stoxx Europe 600 Index this month.
Credit Suisse reported 61.2 billion Swiss francs ($69 billion) of outflows in the first quarter on Monday, underscoring the challenge for UBS in retaining key clients and assets after the emergency takeover. UBS is set to give its update on Tuesday.
In a moment of déjà vu, UBS’s new Chief Executive Officer Sergio Ermotti — brought back to manage the integration of the two — will be quizzed about his strategy for the world’s largest, soon-to-be even larger, wealth manager on Tuesday. Spain’s Banco Santander SA is also due to report the same day.
Europe’s banking compass will point northward to Sweden mid-week, when results from Svenska Handelsbanken AB and Skandinaviska Enskilda Banken AB will be scoured for signs of pain in commercial real estate lending as soaring interest rates raise the risk that some borrowers in the sector will struggle to pay their instalments.
Fixed-income traders at Barclays Plc and Deutsche Bank AG take center stage in those firms’ reports on Thursday, as markets assess how well revenues held up against tough comparisons from a year ago. NatWest Group Plc will round out the week on Friday.
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- For more on what’s going on in other regions, see the US Earnings Week Ahead or the Asia Earnings Week Ahead, and see the ESG Stock Watch for a selection of the environmental, social and governance themes that may come up on the week’s earnings calls.
Highlights to look for this week:
- Monday: Credit Suisse reported 47.1 billion francs of net outflows at the key wealth management unit and said a 1.3 billion-franc impairment charge was mostly related to that business. Outflows have moderated but not yet reversed, the bank said in its earnings report. At the Swiss unit, the firm saw a further 6.9 billion francs of outflows, mostly at the private clients business. Its liquidity position is still depending on the Swiss National Bank’s granted access to significant credit facilities. As of March, the net amount of borrowings under these facilities amounted to 108 billion francs after repayments of 60 billion francs in the quarter, with further repayments of 10 billion Swiss francs as of Monday. The deal with UBS has to work, otherwise Credit Suisse may struggle to keep existing, it said.
- Tuesday: UBS (UBSG SW) is set to report at 6:45 a.m. CEST. The strategy of Ermotti, brought back to manage the takeover, will “help shape expectations for the months and years to come,” Bloomberg Intelligence analysts Alison Williams and Neil Sipes said. With the loss of client money now a heightened risk, analysts will likely quiz UBS bosses on how they’re faring at retaining top talent — and their wealthy customers. Any timeline for a return of share buybacks, which UBS suspended when it agreed to buy its local rival, will also be of interest. Citi analysts said this month a resumption of buybacks before 2026 was unlikely. First-quarter results, meanwhile, are expected to show weakness in the trading and dealmaking units, with equities revenue seen down 13.5%, while advisory is expected to plunge 23%, according to estimates compiled by Bloomberg. Credit Suisse’s outflows show the difficult task UBS has ahead of it, analysts said on Monday.
- Santander (SAN SM) is due to report at 6:45 a.m. CEST. Spain’s largest lender added over one million new customers in the first months of this year and has already said it expects first-quarter revenue to grow at a double-digit percentage rate, with lending and deposits increasing by 4% and 6%, respectively. This should allow the bank to uphold its 2023 targets, according to BI’s Lento Tang and Ilia Shchupko. An estimated net interest income growth of more than 40% is seen as the main driver of return on tangible equity in Spain, while a normalization of loan-loss provisions in the US and Brazil may be key in Americas, Tang said. The lender is targeting a RoTE above 15% this year and between 15% and 17% in the 2023 to 2025 period. Analysts at Deutsche Bank expect another positive quarter for the entire Spanish industry, despite a 4.8% extraordinary tax on interests and fees introduced by the government. Spanish lenders will likely only see a reduced impact from the recent turbulences in the finance world, according to the Bank of Spain. Diverse depositors and ample guarantees diminish the risk of surging withdrawals, the regulator said.
- Wednesday: Handelsbanken’s (SHBA SS) net interest income and cost increases will be in focus when its report is released at 6:30 a.m. CEST. Analysts expect a jump of almost 40% for NII, according to estimates compiled by Bloomberg. An increase of that extent is feasible, after a similar uptick in the fourth quarter, according to BI. Deutsche Bank analysts see higher rates and deposit margin benefits providing support. Staff costs may be higher year-on-year but other expenses should be seasonally lower, they said. Consensus of 8% cost growth from last year could turn out to be too low, however, due to elevated development costs, BI said.
- SEB’s (SEBA SS) update is scheduled for 7 a.m. CEST. The bank is expected to post a 44% surge in NII year-on-year, while commission and fee income is seen down 3.5%, according to estimates compiled by Bloomberg. Lost market shares in mortgages should balance out growth in corporate lending in the quarter, Deutsche Bank said, while flagging that costs will likely have risen from last year amid inflationary pressures. Meanwhile, Credit Suisse analysts said they haven’t factored in a “meaningful real estate price correction” into their estimates for banks, but that risks are elevated, particularly in Sweden. NII momentum may carry through the first half, which could add upside to 2023 estimates, BI said.
- Thursday: Barclays’ (BARC LN) results are due at 7 a.m. UK time. Its fixed-income traders, who last year generated more than 20% of group revenue, face a tough comparison to the first quarter of 2022, when investors navigated market volatility in the wake of Russia’s invasion of Ukraine. FICC is expected to have dropped 11% to about £1.5 billion ($1.9 billion) year-on-year, estimates compiled by Bloomberg show. Still, the result might prove a decent a cushion as NII tailwinds from central bank rate hikes subside, BI said. Analysts Tang and Jonathan Tyce expect the lender to confirm its “cautious” UK net interest margin guidance of above 3.2% — which underwhelmed investors the previous quarter.
- Deutsche Bank (DBK GY) is expected around 7 a.m. CEST. With capital returns being a focal point for investors, the CET1 ratio and any potential for second-half repurchases will be monitored after optimistic comments in March from CEO Christian Sewing on intra-quarter developments, according to BI. Analysts expect strong NII growth, with the key metrics of fixed-income and trading revenue also showing momentum despite a tough year-on-year comparison. Evidence of expense control is needed for Deutsche Bank to meet its goals, though bank levies will also have added to first-quarter costs. Bloomberg consensus sees quarterly FIC dropping almost 10% to €2.56 billion ($2.8 billion), a CET1 ratio of 13.3%, up from 12.8%, and a 26% jump in NII to €3.6 billion.
- Friday: NatWest (NWG LN), due at 7 a.m. UK time, guided for a full-year net interest margin of about 3.2% in February, although BI and Citi analysts expect the bank to be able to do better. The bank could surprise on the upside if credit losses turn out to be lower than feared in the first quarter, BI said, with estimates compiled by Bloomberg currently forecasting a provision of £259 million. That said, NatWest might well “top up provisional buffers if there are early signs of increasing customer defaults,” BI’s Tang and Tyce said.
–With assistance from Christopher Jungstedt, Veronica Ek, Alexey Anishchuk, Thomas Gualtieri, Simon Lee and Sam Unsted.
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