Investors punish Europe's big banks as results underwhelm

SHARES in some of Europe’s biggest banks tumbled in early trading on Thursday (Oct 26) after a series of earnings updates underwhelmed investors, who are already concerned profit margins may have peaked after a long run of interest rate hikes.

By 0834 GMT, the broader European banking index fell as much as 2.4 per cent to its lowest in four months. Top fallers on the index were Standard Chartered, down 11 per cent, Swedbank, down 8.5 per cent and BNP Paribas, down 4 per cent.

The share moves sharpen the focus on the European Central Bank ahead of its expected decision to keep benchmark rates unchanged later on Thursday, snapping a 15-month streak of hikes.

Major banks have benefited hugely from higher rates designed to curb rampant inflation, as they help them boost lending revenue even as they raise the risk of loan defaults. However, investors are concerned that this trend could be at an end.

“I wouldn’t like to be a central banker trying to set interest rates at the moment. There’s a lot of conflicting indicators,” said Chris Hiorns, head of multi-asset and European equities at EdenTree.

Banks remained attractive investments, Hiorns added, but a global dealmaking slump was hurting lenders with large investment arms.

Concerns about China’s economic fragility are also hitting some European banks with major operations in Asia.

London-listed Standard Chartered announced a profit slump driven by a combined nearly US$1 billion hit from its exposure to China’s real estate and banking sectors. Its stock fell as much as 17 per cent at the open, triggering a brief automatic trading halt.

France’s BNP Paribas, the euro zone’s biggest bank, posted in-line quarterly results, but several analysts pointed to unexpected weaknesses in its retail and consumer finance activities.

SEE ALSO

Standard Chartered shares plunge on profit hit, China real estate and banking losses

BNP Paribas posts in-line Q3 profits as trading declines

The FTSE 350 Banks index hit its lowest since March, and was last down 2.7 per cent.

Several Spanish banks appeared to buck the downtrend. Sabadell rose around 5 per cent after raising its outlook for 2023 net interest income growth on the back of higher interest rates. REUTERS