Investors punish Europe’s big banks as results underwhelm

LONDON, Oct 26 (Reuters) – Shares in some of Europe’s biggest banks tumbled in early trading on Thursday 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 (.SX7P) fell as much as 2.4% to its lowest in four months. Top fallers on the index were Standard Chartered, down 11%, Swedbank (SWEDa.ST), down 8.5% and BNP Paribas (BNPP.PA), down 4%.
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 $1 billion hit from its exposure to China’s real estate and banking sectors. Its stock fell as much as 17% 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.
The FTSE 350 Banks (.FTNMX301010) index hit its lowest since March, and was last down 2.7%.
Several Spanish banks appeared to buck the downtrend. Sabadell (SABE.MC) rose around 5% after raising its outlook for 2023 net interest income growth on the back of higher interest rates.
Reporting by Iain Withers, Naomi Rovnick and Joice Alves in London, Jesus Aguado in Madrid and Danilo Masoni in Milan; Editing by Amanda Cooper and John Stonestreet
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