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Big European banks are maintaining ambitious performance targets despite strong first-quarter profits, as they face rising threats to future earnings from a global trade war and economic uncertainty. While some banks reported significant profit increases, concerns over bad loans and lower loan demand are emerging, prompting cautious risk management strategies. Banks are now focusing on resilient domestic lending to navigate potential downturns, with some preparing for opportunities in M&A and restructuring amid the shifting economic landscape.
Deutsche Bank's investment arm, DWS, is attempting to sell its 23% stake in Yorkshire Water, hoping recent regulatory clarity on UK water bills will attract buyers. The firm is in discussions with potential investors and is open to a joint sale with Corsair, which holds a 30% stake, to facilitate majority control. Despite challenges in the sector, including public backlash over sewage spills and rising bills, the recent determination by Ofwat has provided a more sustainable outlook for future revenues.
Credit Agricole reported a 4.2% decline in first-quarter net income to €1.82 billion, impacted by a one-off tax hike and rising costs, which outpaced revenue growth of 6.6% to a record €7.26 billion. Shares fell 3.5% as the bank faced a total of €200 million in exceptional taxes for 2025, while its investment banking division showed resilience amid volatile markets. Retail operations in France and Italy struggled with declining net interest margins, despite increased fee income from asset management.
Erste Group Bank is negotiating to acquire a 49% stake in Santander's Polish unit, a deal potentially exceeding $8 billion. Santander, which holds a 62% stake in Santander Bank Polska, is exploring options for its investment amid a broader strategy to expand in the U.S. and reassess its British operations. Following the news, Erste's shares fell over 4%, while Santander's Polish unit saw a 2.2% decline.
BNP Paribas reported a 4.9% decline in net income to €2.95 billion in Q1, attributed to the re-inclusion of its Ukrainian operations, despite rising sales in its corporate and institutional banking unit. Operating expenses increased by 4%, exceeding expectations, while the bank reaffirmed its profit targets for 2024-2026 amid a challenging economic outlook influenced by global trade tensions.
European banks face a challenging outlook for 2025 earnings as rising tariffs and economic uncertainty dampen growth prospects. Analysts predict a decline in revenue and increased risk lending, with concerns over credit quality leading to higher provisions for loan losses. Despite some banks maintaining guidance, market volatility has resulted in significant share price declines for major institutions.
UBS Asset Management has lifted its ban on investments in certain defense companies, joining a trend among European asset managers to reconsider exclusions amid rising geopolitical tensions. The firm, which manages $1.8 trillion in assets, will now allow investments in conventional arms manufacturers, while still prohibiting controversial weapons. Other firms, including Allianz Global Investors and Danske Bank, are also easing restrictions on defense investments.
UBS Asset Management has removed its exclusion on investments in conventional weapons manufacturers, joining other European money managers like Allianz Global Investors in reassessing their policies amid rising geopolitical tensions. This shift comes as defense stocks surge due to increased military spending commitments from European nations. Exclusions remain for controversial weapons such as cluster munitions and biological weapons.
UBS is negotiating with regulators to limit its investment bank's size and increase capital reserves to avoid stricter regulations following the Credit Suisse collapse. The bank may cap its investment banking division at 30% of total business and is considering adding $5 billion in capital, though it faces demands for much more. UBS executives warn that excessive capital requirements could harm its competitiveness and potentially lead to a relocation of its headquarters, despite reassurances from lawmakers that extreme regulations will not be imposed.
UBS is proposing to limit the size of its investment bank and increase capital reserves to mitigate regulatory pressures following its acquisition of Credit Suisse. The bank may add $5 billion in capital, but this falls short of the $40 billion regulators might require. UBS is also considering capping its investment banking division at 30% of its total business to address concerns over financial stability while maintaining its headquarters in Switzerland.
Tommy Reggiori Wilkes
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European banks cautious despite strong first quarter profits amid economic uncertainty
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