European banks face new worries from Trump victory

Analysts say the surprise election result could make investors nervous about putting money into weakened lenders.

Deutsche Bank is among the lenders expected to go to investors for capital in coming months, which could be more difficult under a Trump presidency. Picture: AFP Photo/Daniel Roland.

European banks already tormented by low interest rates and economic uncertainty face new anxieties from US president-elect Donald Trump’s surprise victory, analysts say, such as potential hits to their profits from trade financing and investment banking.

At a time when several big European banks themselves face pressure to tap the markets for capital, analysts and bankers say Mr Trump’s election win could make investors more nervous about putting money into weakened lenders.

“This is not the environment you want to go out in and raise money,” Bernstein Research banking analyst Chirantan Barua said. “If you are undercapitalised you will suffer.”

Investors and analysts expect lenders including Deutsche Bank AG, UniCredit SpA and Banca Monte dei Paschi di Siena SpA to go to investors for capital in coming months. Spokespeople for the banks declined to comment Wednesday. Deutsche Bank has said it has no plans to raise capital.

European bank stocks were broadly stable after an initial bout of jitters on Wednesday. The Stoxx Europe 600 Banks index was down around 1.6 per cent at 12:30pm. GMT.

In coming weeks, the US election outcome could benefit banks’ trading businesses, as clients adjust positions to account for perceived risks in markets for currencies, bonds, stocks and other assets.

Over time, a Trump administration could dial back financial-services regulation, particularly with Republicans controlling both houses of Congress, potentially lowering banks’ regulatory costs.

But corporate clients might hold back on issuing debt or equity in coming weeks, especially if they were undecided ahead of the election, analysts and bankers said.

A pullback in new issuance of bonds or shares would eat into investment banking profits. But investors also saw that the harshest predictions ahead of the UK’s Brexit vote turned out to be extreme. Many big European banks reported stronger-than-expected profits in the third quarter.

Still, several European banks rely heavily on the US markets to drive profits. British lender Barclays PLC, for instance, makes about a third of its revenue in the US, including through its US credit card business and New York-based investment bank. Any economic slowdown there would hit on its bottom line.

Analysts said Wednesday that bond markets need time to digest how government borrowing costs and tax policies could change. Mr Trump’s victory added to uncertainty over whether the US will raise interest rates, and it is unclear how his policies will affect emerging-market countries heavily dependent on US trading relationships.

Companies that generate deal fees for banks could suffer “uncertainty shock” as they wait to see how Mr Trump’s policies take shape, Mark Doms, a senior US-based economist at Nomura Holdings, said Wednesday.

Analysts said the wave of voter sentiment that helped a businessman and untested politician upset Hillary Clinton, a seasoned public official, makes upcoming European votes in France, Italy, Germany and elsewhere look less predictable.

For Europe’s Asia-focused banks, HSBC Holdings PLC and Standard Chartered PLC, the Trump victory could mean a double whammy from lower global trade and a delay in US rate increases.

HSBC, the world’s largest trade finance bank by market share, also faces a longer slog selling down its pre-financial crisis US consumer loan book and freeing up capital in the country, Bernstein banking analysts said Wednesday. Analysts had pencilled in around $US10 billion in capital coming out of the US business that could be reinvested or returned to shareholders through share buybacks.

Shares of Banco Bilbao Vizcaya Argentaria S.A. declined by 8.6 per cent Wednesday morning, as shareholders worried about the bank’s stake in Mexico and potential fallout from Mr Trump’s policies. The Mexican peso’s record decline against the US dollar will have “a negligible impact on capital due to our current hedging positions,” BBVA said.

Mr Trump has vowed to tear up the North American Free Trade Agreement. BBVA said his victory speech “was an institutional one that called for greater economic growth and good relationships with other nations.”

Early Wednesday, Jefferies analysts downgraded BBVA shares to hold from buy.

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