European Banks Expected to Boost Profits

By Tommy Reggiori Wilkes and Jesús Aguado
LONDON/MADRID (Reuters) – European banks are anticipated to report a significant increase in profits for the final quarter of last year, driven by strong lending margins and substantial investment banking revenues.

However, analysts caution that decreasing interest rates may hinder banks’ ability to exceed forecasts this year. Executive confidence is high, with many using surplus cash for acquisitions, indicating potential consolidation in the industry.

S&P states, “More confident in their financial standing and bolstered by positive market repricing, some European banks are levelling up their ambitions.” This may involve diversifying services or pursuing mergers and acquisitions, as seen with UniCredit’s stake in Commerzbank and surprise offers in Spain and Italy.

M&A specialists are gearing up for increased activity as the U.S. economy grows, but concerns remain about Donald Trump’s administration cutting regulations, potentially putting European banks at a disadvantage amid local economic struggles.

Christian Edelmann from Oliver Wyman anticipates “solid results” for European banks, with high levels of buybacks and dividends expected into 2025. However, he warns that the performance gap with U.S. banks may widen, as European banks are less involved in investment banking, which tends to benefit from M&A and deregulation.

Upcoming reports are expected from major banks, including Deutsche Bank and BBVA, with analysts raising fourth-quarter forecasts based on slower-than-expected declines in net interest income. Despite strong investment banking revenue from U.S. banks, European banks face challenges from potential rate cuts by the ECB and Bank of England.

Recent performance from Spain’s Bankinter highlighted the impact of lower rates on lending income but indicated growth in fees. JPMorgan suggests that French banks could meet their 2024 net profit targets, but prospects for 2025 are becoming more difficult. Deutsche Bank is projected to announce a notable drop in fourth-quarter net profit, influenced by legal provisions and restructuring costs, while BBVA may see growth in lending from Turkey and South America despite slowing in Spain and Mexico.