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Bloomberg
Investors in Europe’s perennially underperforming banks are no strangers to disappointing earnings, but the third quarter brought an unusually large array of scandals and market turmoil that could test their conviction.
The standoff over Italy’s budget, a massive money laundering scandal in Denmark and geopolitical tension chilling trade are only a few of the events that hammered banks. It meant lackluster securities trading for the biggest investment banks, adding to another challenging quarter.
Deutsche Bank AG, Germany’s largest lender, will kick off the earnings season on Wednesday, along with Barclays Plc, giving a first glimpse how Europe’s investment banks stacked up against their US peers. Analysts are predicting a tough quarter and expect Deutsche Bank, Credit Suisse Group AG and BNP Paribas SA to report year-on-year declines. UBS Group AG, Barclays and Societe Generale SA may gain.
Europe’s banks will probably follow their US rivals in posting slumps from fixed-income trading. Goldman Sachs Group Inc., which reported a 10 percent decline, partly blamed “low volatility and lower activity … particularly in Europe†at its rates business — an ominous sign — and also cited a decline in credit trading. Some analysts expect double-digit declines at Credit Suisse, Deutsche Bank and BNP and smaller drops at Barclays, UBS and SocGen.
UniCredit, Italy’s largest bank, also has problems closer to home, because like all Italian banks, it owns a lot of the country’s government debt. Normally a safe investment, Italian bonds slumped in the third quarter, with the 10-year yield spread over Germany rising to the highest in more than five years last week, because the populist government in Rome wants to borrow more than European Union rules allow.
Legacy issue still haunt some banks. Danske Bank A/S last month disclosed that a “large†part of some $234 billion that flowed through an Estonian subsidiary may be of suspicious origin, prompting the resignation of CEO Thomas Borgen.