European bank earnings: Morningstar insight

30/10/2024

European banks are now in full swing announcing their Q3 2024 earnings results. Please find comments from Johann Scholtz, Senior Equity Analyst at Morningstar, on what we can expect from the upcoming announcements:

BNP Paribas

“BNP Paribas remains one of our top picks among European banks, thanks to its proven ability to deliver consistent earnings growth with minimal volatility. Despite anticipated inflationary cost pressures from wage settlements affecting retail banking, we expect the corporate and investment banking sectors to thrive, driven by constructive markets and increased issuance. While leasing and personal finance businesses have dragged down results recently, we’re optimistic about reduced loan loss provisions in personal finance and diminishing impacts from lower second-hand car prices.”

Société Générale

“Société Générale is forecasting a significant rebound in net interest income to €3.8 billion for fiscal 2024, signaling recovery after a subdued first half. With the negative impact of interest hedges behind them, they must demonstrate marked improvement in Q3 2024 to regain market confidence. While their 6% return on tangible equity target for 2024 appears within reach, hitting the ambitious 9-10% target by 2026 presents more of a challenge. In light of recent profitability trends across European banks, it’s increasingly difficult to justify Société Générale’s current discounted trading relative to the sector.”

ING

“In anticipation of ING’s upcoming 3Q24 results , we expect an announcement of a new EUR 2.5 billion share buyback initiative, which could positively impact the share price. While ING has experienced a slight increase in non-performing loans, we are monitoring this closely against a backdrop of rising insolvencies in the Netherlands. Despite these challenges, ING remains a compelling choice for income-focused investors, offering a high dividend yield and the potential for significant share buybacks.”

UniCredit

“While we don’t anticipate any major developments regarding the potential acquisition of Commerzbank, UniCredit is aware of the pressure on revenue due to declining interest rates. The focus on cost management will be crucial for European banks moving forward. UniCredit remains committed to maintaining stable operating expenses through 2026, despite the disappearance of benefits from previously higher interest rates.”

Intesa Sanpaolo

“Despite the anticipated pressure on net interest income due to lower rates in the latter half of 2024, Intesa Sanpaolo is strategically positioned to counterbalance this with increased fee income from its asset management and insurance sectors. This adaptability, combined with the bank’s robust profitability and strong capital foundation, makes Intesa an attractive prospect for income-focused investors, offering a dividend yield around 9%.”

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European bank earnings: Morningstar insight