Banks Lift

European banks have a strong second quarter

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What's going on?

On Wednesday, several European banks Credit Suisse, BNP Paribas, and BBVA reported second-quarter results which were much stronger than expected.

What does this mean?

Investors were waiting for these results with their hands over their eyes, likely having seen how US banks did last month and aware European banks typically do worse. Bank of America, Goldman Sachs, and their Stateside peers delivered record second-quarter profits, but their trading income fell big time.

So it must have come as a relief to see a better-than-expected second-quarter profit from Switzerlands Credit Suisse. That comes thanks to the growth of its trading segment, as well as wealthy clients putting $10 billion more under its investment managers stewardship than in the previous quarter. Spains BBVA and Frances BNP Paribas beat profit forecasts too and the latter even beat US rivals for the second quarter in a row, growing its fixed-income trading revenue by 9%.

Why should I care?

For markets: Banks are doing it for themselves.
European banks are currently under pressure to pursue major cost-cutting plans. Thats partly because eurozone interest rates are low and likely to fall further which limits how much money banks make from loans (the same challenge awaits American banks too). But a few are now looking to grow their way out of trouble. BNP Paribas is doubling down on trading, having agreed to take on some of Deutsche Banks US trading business as the German bank restructures. And the UKs Lloyds whose results didnt impress on Wednesday is in negotiations with grocer Tesco to purchase its portfolio of mortgages.

The bigger picture: Credit Suisse is making a habit of being right.
Last Friday, investment research analysts at Credit Suisse published a report claiming Spotify’s investors were too optimistic about its ability to add new subscribers. And they were proven right on Wednesday: Spotify reported fewer subscribers than expected last quarter and shares of the second-largest music streaming platform (behind Chinas Tencent) fell 2%.

Originally posted as part of the Finimize daily email.

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