by Tommy Wilkes, Tom Sims and Jesús Aguado

LONDON/FRANKFURT/MADRID (Reuters) – European bank results to be released this week will help investors understand whether high interest rates are still supporting financial groups’ profits, or whether the rebound in bank stocks will peter out.

Lloyd’s Banking Group will release its first quarter results on April 24, while BNP Paribas, Deutsche Bank and Barclays will release theirs on the 25th.

The rise in key rates after years of low rates has changed the situation for European banks, which have increased payments to their shareholders and seen their prices soar.

“What is fundamentally different is that we have left the era of negative rates. This has had a fundamental impact on the outlook (for banks),” explains Christian Edelman, co-head of Europe at from the consulting firm Oliver Wyman.

However, we will have to wait a few weeks for an overall view, with BBVA and Santander publishing their results at the end of April, while Société Générale and UBS will publish theirs at the beginning of May.

Figures released last week by Nordea and Bankinter suggest that profit growth is continuing, as the European Central Bank (ECB) is expected to cut rates in June.

Christian Edelman emphasizes, however, that the erosion of margins and the slowdown in credit demand can be worrying.

JPMorgan analysts noted last week that their caution towards European banks was “unwelcome”, with shares in the sector having risen 15% since the start of 2024, a faster rate than that of American banks, while low valuations suggest there is still significant upside potential even if revenue growth slows.

The results of American banks were more mixed, with net interest income, the difference between what banks earn on interest and what they pay to depositors, having been worse than expected at JP Morgan while income of the investment bank allowed Goldman Sachs to exceed expectations.

INCREASING PROFITS

High rates and a slight increase in non-performing loan volumes should allow European banks to get 2024 off to a good start.

Deutsche Bank is expected to post its 15th consecutive quarter in the green, after years of losses. The leading German bank could benefit from its investment banking activities and post 1.2 billion euros in profit, according to a consensus it publishes, compared to 1.16 billion in 2023.

BNP Paribas should report a good first quarter, with seasonality expected to benefit the group’s profits, according to UBS analysts.

Markets anticipate fewer rate cuts this year, which could also support banking stocks, according to analysts.

Santander and BBVA are expected to report an increase in net profit and net interest income, with the Spanish, Brazilian and Mexican geographies benefiting the groups.

Investors will nevertheless be attentive to the impact of the slowdown in activity in Europe and the performance gap between the bloc and the United States, as well as the impact of the rate gap between the Federal Reserve on the one hand and the ECB and the Bank of England, on the other.

Last week, Margarita Delgado, deputy governor of the Bank of Spain, said the rise in net interest income “cannot be considered sustainable” as the revaluation of loan portfolios was virtually complete.

The UBS results will provide insight into how Credit Suisse’s integration process is unfolding, with KBW analysts stressing that any comments on Swiss regulators’ proposals to force UBS to hold more capital could “influence sentiment”.

Christian Edelman notes that interest rates maintained at restrictive levels for longer than expected and a slowdown in activity could aggravate the problems of the commercial real estate sector, in the midst of a recession.

“If rates remain high for a long time, and the economy slows, expect significant losses in commercial real estate portfolios,” he explains.

(Report by Tommy Reggiori Wilkes, Tom Sims and Jesus Aguado, Corentin Chappron, edited by Sophie Louet)

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