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European bank earnings round up

Gildas Surry, partner at Axiom Alternative Investments, spoke to IGTV’s Victoria Scholar about European bank earnings this quarter.   

UBS

UBS reported pre-tax profit of CHF1.97 billion, beating analysts’ estimates for CHF1.85 billion. It was the highest quarterly profit reported in three years, since the first quarter of 2015.

However, its enlarged wealth management division, which recently saw its US and international businesses merge, posted pre-tax profit of CHF1.1 billion, falling short of expectations, which led to a sharp decline in the Swiss lender’s share price. The CET1 ratio, which measures the strength of its capital position fell to 13.1%, shy of forecasts for 13.3%. Elsewhere, the investment banking division was a standout performer, reporting pre-tax profit of CHF589 million compared with analysts’ estimates for CHF463 million.

Santander

Santander reported net profit of €2.05 billion in the first quarter (Q1), coming in ahead of analyst expectations for a reading of €2.01 billion .

However, just like UBS, investors failed to cheer the beat on the bottom line with shares reacting negatively to the earnings release. The performance in emerging markets, the US and Europe were better than expected, whilst trouble came from the UK. Increased costs associated with regulation and stiff competition in the UK market caused a headache for the Spanish lender. UK net operating income hit £517 million, down 15% year-on-year after it took a hit from the collapse of Carillion.

Credit Suisse

Investors cheered Credit Suisse Group’s quarterly report, with shares gaining around 4% following the announcement. The Swiss lender posted its best three-month performance in 11 months (in terms of profit), with pre-tax earnings up 57% to CHF1.1 billion.

CEO Tidjane Thiam will have been extremely pleased with the quarterly release, as his plan to shift the banks focus away from volatile trading towards wealth management appears to be bearing fruit. All divisions beat expectations except for in the investment bank and capital markets division (IBCM). Profit in the wealth management division globally hit CHF1.284 billion, which represents a year-on-year increase of CHF269 billion.

Deutsche Bank

It was the first quarterly release since new CEO Christian Sewing took to the helm on 8 April 2018. However, he has been on the board since 1 January 2015, and at the company for nearly 30 years.

Sewing replaced John Cryan in the top position, cutting the former boss’s contract short by two years. Shares see-sawed in reaction to Deutsche Bank’s quarterly earnings on Thursday, eventually drifting south in the session. Sewing made his mark on the first quarterly results by announcing plans to take a step back from the US and trading, marking a reversal in the German lender’s goal to take on the Wall Street giants in recent decades. Deutsche Bank now plans to focus more on customer banking in southern Europe and its domestic market. Pre-tax income at the investment bank slumped 74% on revenues down 13%. Sales and revenue fell 17%, in stark contrast to the impressive rises for the big US banks.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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