(Bloomberg Opinion) — European bank stocks have solidly beaten their American rivals for well over two years, and the signs are that President Donald Trump’s chaotic assault on global politics and trade will continue to fuel that trend. BNP Paribas SA of France gave a surprisingly upbeat outlook as the first from the region to report quarterly earnings Thursday, raising hopes that its peers will also have good news for investors this week.
The big theme is America’s trade-war disruption should be offset by investment ramping up in Europe and corporate clients seeking new supply chains and markets to sell into. On the pure finance side, corporate treasurers are looking to diversify sources of funding and investors are considering havens away from dollar-denominated markets, which should also help Europe’s bankers.
This is an earnings season where what’s happened since the close of the first quarter is far more important than what came within it: Trump’s so-called Liberation Day, when he launched trade taxes on imports from anywhere and everywhere, landed fewer than than four weeks ago, on April 2.
BNP Paribas’s first-quarter report was similar to those of US banks in some ways. Stock trading was spectacular, with volatility already stoked by Trump’s confusing policies, while dealmaking and primary capital markets businesses were undermined by the uncertainty. Other European investment banks will doubtless have experienced the same pattern.
BNP’s equities revenue was up 39% in dollar terms versus the same period last year, beating the US average of nearly 31% in the first three months of the year. Only JPMorgan Chase & Co. and Morgan Stanley did better among US banks. In Europe, UBS Group AG, Barclays Plc and Societe Generale SA ought to have benefited from the same following winds.
For deals, initial public offerings and other fundraising, the story was common, too: Companies and private equity have little choice but to wait for the White House to end the fights it has started with friends and foes around the world.
But Trump’s whirlwind will bring benefits to Europe. The promise of a wave of reinvestment by both governments and companies should mean more financing in the medium term at least. At the same time, steeper yield curves everywhere are boosting net interest income because deposit rates are falling while longer-term lending and government bond rates remain higher — apart from in Switzerland, meaning UBS will likely miss out.
Jean-Laurent Bonnafe, chief executive officer of BNP, said more spending was inevitable: “Europe has no choice but to reinvest,” he told investors on the earnings call. However, he cautioned it wouldn’t be in the coming months, but in the next two to five years. Still, the interest income rebound will be swift, supporting BNP’s target of greater than 5% annual revenue growth over the next three years, according to Bank of America Corp. analysts.
Deutsche Bank AG could benefit particularly from German defense spending, but it won’t enjoy the bounce in equity trading, having quit that business several years ago, and it could suffer markdowns on leveraged loans it’s failed to shift, according to analysts at Citigroup Inc.
The other surprising bit of good news from BNP was on trade finance, an area that seemed an obvious casualty in a trade war. Despite reports of cancelled orders, plunging container volumes out of China and even of exporters dumping goods at sea, BNP said trade finance volumes were up. That was partly due to importers building inventory ahead of tariffs kicking in, but also because companies were trying to diversify their suppliers and their export markets.
More varied trade around the global south and between Europe and Asia could be a positive story in the outlooks of HSBC Holdings Plc and Standard Chartered Plc this week, too.
Big US banks like JPMorgan still have far more capital and much higher stock valuations than their European rivals. But the Americans spent earnings season fretting about the cloud of recession heading their way; lenders in Europe look like they might have a lot more to say about silver linings.
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This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.
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