The tremors emanating from the US regional banking sector last week did little to ease the queasiness surrounding deposit flows and systemic risk as the last of Europe’s lenders prepare to report first-quarter results.
(Bloomberg) — The tremors emanating from the US regional banking sector last week did little to ease the queasiness surrounding deposit flows and systemic risk as the last of Europe’s lenders prepare to report first-quarter results.
Earnings in the region have so far proven resilient, but that may change as global economic growth sputters and inflation risks remain elevated. Banks in particular may find tailwinds from rising interest rates tapering off.
The European Central Bank’s most recent bank lending survey, which showed tighter credit standards and lower loan activity than anticipated, suggests higher rates are already working their way through to the real economy. That and other data prompted the ECB on Thursday to slow the pace of rate hikes to 25 basis points from 50.
French banks have seen less of an upswing in net interest income than European peers, partly because of regulatory restrictions on savings and mortgage rates, according to Bloomberg Intelligence. Deposit trends will also be in focus, when Crédit Agricole SA and Société Générale SA report this week.
In The Netherlands, ABN Amro Bank NV and ING Groep NV are also due. Other big hitters include Saudi Aramco, Rolls-Royce Plc and Fresenius Medical Care AG. Kenya’s largest company, Safaricom Plc, also reports.
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Highlights to look for this week:
Monday: No major earnings of note
Tuesday: Aramco (ARAMCO AB) is due before 10 a.m. in Riyadh. Production for the rest of the year may be limited to just below 10 million barrels a day after OPEC+’s surprise announcement last month of more output cuts, BI has said. Though profitability this year may be softer than 2022, cash generation should remain robust. That should cover dividends and increased capital-spending guidance at $45 billion to $55 billion. Aramco is in talks with Sinopec and TotalEnergies SE to invest in the Jafurah gas development in Saudi Arabia to diversify beyond oil, people familiar with the matter have told Bloomberg.
- Fresenius Medical Care (FME GY) probably hasn’t made much progress on its turnaround strategy since its investor day in April, so the focus will be on whether labor-associated headwinds are easing, BI said. Operating income probably fell more than 20%. Fresenius, which owns 32% of Fresenius Medical Care, has pledged to give the dialysis specialist more operational freedom as it revamps the business. Both report before the open.
Wednesday: Credit Agricole (ACA FP) should deliver better deposit gatherings than peers, thanks to its regional banking network, in results at 7 a.m. CEST. That could mean a revenue beat for the retail banking segment, according to BI. At the same time, volatile markets may have led to lower asset-inflow revenue, consensus shows. Operating costs are also seen falling, though perhaps not as much as expected because of wage increases. Credit quality remains robust, BI’s Ilia Shchupko said.
- ABN Amro (ABN NA), due at 7 a.m. CEST, ended 2022 on a high note with the announcement of a €500 million buyback and a 17% jump in net interest income. While higher rates and capital returns should have supported NII in the first quarter, growth probably slowed to 13%, consensus shows. Pressure to pass on rate hikes to depositors poses the biggest threat going forward. Expect expenses to drop once again on headcount and ongoing cost-saving initiatives, BI said.
Thursday: ING (INGA NA) may lag peers in terms of NII upgrades as fixed-rate mortgage contracts dominate in the Netherlands and Belgium, but growth should still come in faster than the fourth quarter, according to BI. More measures are needed to contain costs if the bank is to meet its cost-to-income ratio target for the year. It drops at 7 a.m. CEST.
- Safaricom (SAFCOM KN), which faced headwinds in its home market of Kenya, may say full-year adjusted net income rose just 0.5% when it reports at 5:30 a.m. UK time. While new Ethiopian operations launched seven months ago should deliver a sales boost, costs may prove a burden.
- Rolls Royce’s (RR/ LN) trading update may divulge more on the turnaround plan that sent its shares soaring in February. The civil aerospace unit probably got a boost from servicing engines in the first quarter, though new engine builds likely fell short on weak wide-body deliveries, according to BI. That spells more engines for spares or business jets, which have better margins. For the first half, revenue in civil aerospace is seen rising more than 20%, while power systems and defense units may be less impressive, with estimated increases of just 5%.
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Friday: SocGen’s (GLE FP) investment-banking bias means it needs to close the cost gap with peers like BNP Paribas and Crédit Agricole, which have more diverse portfolios. Revenue from equities trading, which impressed in recent quarters, is expected to fall 17%, still among the smallest drops compared with European peers. That said, the scope for an overall earnings beat appears low, according to BI.
–With assistance from Valentine Baldassari, Andrey Biryukov, Charles Capel, Helen Nyambura and Alexander Pearson.
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