(Bloomberg’s opinion) – European banks’ stocks have been firmly beating their U.S. rivals for more than two years, and signs that President Donald Trump’s chaotic attack on global politics and trade will continue to drive the trend. France’s BNP Paribas SA is a surprisingly optimistic outlook in its first report on quarterly revenue on Thursday and hopes its peers will have good news for investors this week.
The biggest theme is that the U.S. trade war damage should be offset by accelerated investments from corporate clients in Europe and seeking new supply chains and markets. On a purely financial side, corporate finance directors want to diversify their sources of funds, and investors are considering avoiding dollar-based markets, which should also help European bankers.
It’s a season of earnings, and what’s going on since the end of the first quarter is much more important than what’s happening: Trump’s so-called Liberation Day, when he filed import trade taxes from anywhere and anywhere, less than the four weeks before April 2.
BNP Paribas’ first quarter report is similar in some ways to the Bank of America’s report. Stock trading is spectacular, Trump’s confusing policies have caused volatility, while trading and primary capital markets businesses have been undermined by uncertainty. There is no doubt that other European investment banks will experience the same model.
National Bank of France’s stock revenue increased by 39% compared to the same period last year, with the U.S. average of nearly 31% in the first three months of the year. Among Bank of America, only JPMorgan Chase and Morgan Stanley performed better. In Europe, UBS Group AG, Barclays Plc and Societe Generale SA should benefit from the same winds.
For deals, initial public offerings and other fundraising events, the story is also common: companies and private equity have no choice but to wait for the White House to end the battle with friends and enemies around the world.
But Trump’s whirlwind will bring benefits to Europe. The commitment of government and corporate reinvestment should mean more financing in the medium term at least. Meanwhile, steep earnings curves across the country are increasing net interest income as deposit rates are falling, while long-term loans and government bond rates remain higher – besides Switzerland, this means UBS may miss it.
BNP CEO Jean-Laurent Bonnafe said more spending is inevitable: “Europe has no choice but to reinvest,” he told investors on earnings call. However, he warned that this will not be in the next few months, but in the next two to five years. Nevertheless, according to Bank of America analysts, the rebound in interest income will be rapid, supporting BNP’s target of annual revenue growth of more than 5% over the next three years.
Deutsche Bank AG may benefit from German defense spending, but it won’t enjoy the rebound in stock trading, exited the business a few years ago and could suffer a price cut from leveraged loans, but it failed to transfer.
Another surprising good news for BNP is trade financing, an area that seems to be obvious casualties in the trade war. Despite reports of cancellation of orders, China’s trade currency increased China’s container volume and even dumped goods at sea. This is partly due to importers building inventory before tariffs begin, and also because companies are trying to diversify suppliers and export markets.
More trade in the global south and between Europe and Asia could be a positive story amid the prospects of HSBC Holdings PLC and this week’s standard chartered PLC.
Big American banks like JPMorgan still have more capital and higher stock valuations than their European competitors. But Americans have passed the income season, which has bothered them by the recession’s clouds. European lenders may have much to say about silver linings.
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This column reflects the author’s personal views and does not necessarily reflect the opinions of the editorial board or Bloomberg and its owners.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.
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