Paris (Business Emerge), July 25: The major banks in the euro zone exceeded expectations for their second-quarter earnings, propelled by sustained high interest rates and a thriving investment banking sector. Despite these gains, market apprehensions regarding future prospects tempered their stock performance.
Since the beginning of the year, European banking shares have surged by 20%, reaching levels not seen in nearly a decade, thanks to improved profitability following a prolonged period of stagnant central bank interest rates. However, on Wednesday, the STOXX Europe 600 Banks index (.SX7P) experienced a 0.5% decline by 1510 GMT as fresh earnings reports heightened investor and analyst concerns about the sector’s profit sustainability.
Germany’s Deutsche Bank (DBKGn.DE) diverged from this positive trend, reporting a quarterly loss due to a previously disclosed provision related to its Postbank unit’s legal troubles. The bank’s decision to cancel an additional buyback plan and an increase in provisions for bad loans further pressured its stock, which fell by 7%.
In contrast, BNP Paribas (BNPP.PA) saw its revenue and profits surpass analyst forecasts, driven by a standout performance from its equities trading and a significant increase in revenue across its investment banking division. Analyst Tarik El Mejjad of Bank of America noted that the French bank is likely to exceed its net profit target of over 11.2 billion euros ($12.2 billion).
Despite BNP Paribas’s strong performance, its shares faced volatility due to concerns over its retail banking sector, where net interest income (NII) – the difference between earnings from loans and the cost of deposits – dropped by 11%. This occurred before the European Central Bank’s anticipated rate cuts. Ratings agency Moody’s, represented by associate managing director Olivier Panis, suggested that the strong net interest income reported by banks like Santander (SAN.MC) and UniCredit (CRDI.MI) may have peaked.