European banks are floored by Brexit’s uncertainty, the Eurozone’s economic slowdown, the U.S.-China trade war, and low level of clients’ activity. This toxic cocktail hit revenues of the 7 largest European banks: Q4 earning reports unveiled a sharp decrease in market revenue, falling 19 percent on average.
Deutsche Bank lost 5 percent in a year-on-year change in revenues last quarter, and found itself in the center of a new scandal. According to the Wall Street Journal’s investigation, the German bank was keeping $1.6 billion losses under wraps over the past 10 years. In a nutshell, in 2008 Deutsche Bank bought credit-default swaps for $140 million to hedge a $7.8 billion portfolio of municipal bonds. As financial crisis deepened, the bank didn’t mark down the position and in 2016 got total losses of about $1.6 billion.
HSBC, the largest European bank, reported growth in profit but numbers were below market expectations. The revenue fell by 10 percent in Q4 due to a slowing growth in its two biggest markets: China and Europe. The bank adjusted its investment plans accordingly. In June 2018 executives announced that $15-17 billion dollar investments would be expected in the following three years, but recently the bank decided to ‘‘moderate pace of investments.’’
Barclays reported the least disappointing results. The 4 quarter total investment bank revenue made up – 4.5 percent, compared to the last quarter of 2018. The bank resolved several issues and paid £ 2.2 billion to cover legal issues and agree on a settlement with the U.S. regulators. Moreover, Barclays was able to accumulate £ 2.2 million to cover possible Brexit uncertainty.
Though the U.S.-China trade dispute is showing signs of de-escalation and Brexit uncertainty that European banks so often blame for their mishaps, is expected to subside after the Brexit deal, banks are unlikely to see the light at the end of the tunnel. The slowdown in the Eurozone’s economy with Italy, slipping into a recession and the German economy stagnating, remains the biggest threat for European banks.
By Natalia Kniazhevich