Forecasts for European banks are rocky after fourth-quarter earnings reports predict lower profits for the upcoming year.
Many European banks are seeing rocky states after 4th quarter earnings reports. Owen Walker of the Financial Times said that the general theme was the impact of interest rates. Of course, in the last couple of years, interest rates across Europe have seen historic lows, with some countries even going negative. But these rates have recently jumped to extremely high rates in a short period of time. This has had a huge impact on commercial real estate. These jumped-up interest rates have shot up mortgage costs, many banks are seeing potential losses from their real estate sectors. Uncertainty in European economies is causing cautious plays from some banks, especially following some disappointing earnings reports.
Banks playing it safe?
BNP Paribas saw its shares fall almost 10% on Thursday following its earnings reports and a downgrade of 2025 targets, paying extra caution due to uncertain economic climates. Other French lenders saw a drop in share price alongside BNP Paribas as well
Despite overperforming analyst predictions, Deutsche Bank saw a fall of around 30% profitability compared to earnings reports for 2022. Deutsche is planning share buy backs within the first half of the year, additionally, they are planning a job cut of 3500 by 2025. Deutsche’s low valuation on the stock market was explained by CEO Sewing as a consequence of ‘missed targets too many times in the past’. However, in contrast to other European banks, Deutsche seems to be waltzing into 2024 with relative confidence.
Switzerland’s second-largest bank, Julius Baer, has not had the same luck. A reported 52% profit slump. Following a write-off amounting to SFr606 million in loans it had extended to the Signa Group, CEO Phillip Richenbacker resigned. It was seen as a loss that was taken due to poor risk management. Looking into 2024 with a new CEO, they plan to potentially take legal action against the Signa Group to recover some losses, but their reputation took some hits that aren’t as easily compensated for.