European banks set for profit boost from lending, trading windfall

Italy's UniCredit CRDI.MI, which is moving closer to taking control of Germany's Commerzbank CBKGn.DE in one of Europe's biggest banking battles in decades, and Spain's Santander SAN.MC kick off earnings on Wednesday, followed by France's BNP Paribas BNPP.PA on Thursday. Next week includes Britain's Barclays BARC.L, Germany's Deutsche Bank DBKGn.DE, Swiss bank UBS UBSG.S and Spain's BBVA BBVA.MC. European banks have been on a more than two-year run of rising profitability, powered by higher lending margins and contained credit losses. This has made banks some of the best performing stocks in Europe, with the EURO STOXX Banks Index .SX7P doubling in the past two years to hit its highest level since the 2007-2008 financial crisis. The recovery follows a decade of weakness and a competitive landscape in which more profitable U.S. rivals have taken market share. The European Commission last week outlined plans to limit political interference in European Union banking mergers and remove obstacles to cross-border banking to aid the sector. Concerns, while muted, about rising bad debt provisions and struggling European economies also hang over the sector. Volatility in financial markets triggered by the Iran war has provided a boon for trading floors, while blockbuster M&A deals and IPOs fuelled investment banking revenues. U.S. banks, however, continue to outperform European peers, leveraging the scale of activity in the United States while also taking more market share in Europe. Morgan Stanley forecasts second-quarter investment banking revenue of 21% for UBS, which is strong in equities trading, but just 7% for BNP Paribas and 2% for Societe Generale SOGN.PA after several Wall Street giants reported revenue rises of more than 30%. Analysts at Morgan Stanley recommend clients buy Deutsche Bank shares, calling it "the cheapest bank in our coverage". They are underweight UBS, partly because of uncertainty about the impact of new Swiss regulations. French banks' trading divisions will also be closely watched after they reported subdued numbers in April. For Iberian banks, the second quarter "should reinforce the view that the earnings reset from lower rates is largely behind the sector", Deutsche Bank analysts said. Positive net interest income and strong loan growth mean "the focus is increasingly shifting towards the pace of recovery". European banks reporting Q2 numbers this week and next Sector in rude health as interest rates high, investment banking booms All eyes on impact of Iran war, signs US lenders pulling further ahead By Jesús Aguado and Tommy Reggiori Wilkes MADRID/LONDON, July 21 (Reuters) - After a surge in revenue at U.S. banks, European lenders are expected to follow suit this week when they report second-quarter earnings, powered by gains from higher interest rates and in some cases from trading and investment banking. Headline year-on-year gains, however, are forecast to be smaller and investors will watch closely for any signs the Iran war is taking a toll by clouding the outlook for Europe. Goldman Sachs forecasts an 11% jump in second-quarter pretax profit year-on-year for European banks, helped by an increase in loans, improved margins as rates stay higher since the start of the Iran war, rising non-interest income and lower costs. "We continue to see a ‘better-for-longer’ backdrop for European Banks, underpinned mainly by volume-led revenue growth (with potential upside from the move higher in rates), improving efficiency (with AI emerging as key enabler), and benign asset quality trends against the current macroeconomic backdrop," Goldman Sachs analysts told clients this month.

European banks set for profit boost from lending, trading windfall

Major banks begin reporting this week

Sector strength, but US rivals still ahead

Trading and investment banking remain in focus

European banks expected to report stronger quarterly profits

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