Banks Top Estimates in Otherwise Mixed European Earnings Season

European banks exceeded expectations in the fourth quarter, buoyed by trading income and cost discipline, standing out in an earnings season marked by tariffs and consumer weakness.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — European banks exceeded expectations in the fourth quarter, buoyed by trading income and cost discipline, standing out in an earnings season marked by tariffs and consumer weakness.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.The MSCI Europe Financials index reported aggregate earnings-per-share growth of 18%, twice as strong as expected, Bloomberg Intelligence data shows. Almost 60% of those companies beat estimates, with the likes of BNP Paribas SA, UniCredit SpA and Barclays Plc lifting profitability and returns targets after a strong showing in the last few months of 2025.“European banks’ earnings upgrade cycle is set to continue this year as solid fourth-quarter revenue performance and still-strong credit quality support earnings,” BI analysts Maryana Black and Philip Richards said. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.The overall MSCI Europe index delivered earnings ahead of expectations, though the 4.7% growth remained below the third quarter and the benchmark saw the weakest percentage of beats in more than a year. The region’s companies now need to contend with the accelerating disruption from artificial intelligence and the fresh challenge of adapting to the war in the Middle East.Banks were the largest contributors to positive earnings surprises this season, Bloomberg Intelligence strategists Laurent Douillet and Simbarashe Gumbo said, followed closely by capital goods companies which benefited from an acceleration in both defense and AI spending.Aerospace firm Safran SA lifted mid-term ambitions as it capitalized on strong demand from both civil and military aviation customers, while electrical equipment providers Siemens Energy AG and Schneider Electric SE cashed in on the AI data center rush. The biggest drags on growth, according to Douillet and Gumbo, were materials and transportation, hampered by a prolonged chemicals downturn, weak commodity prices and falling freight rates. In the materials sector, miner Rio Tinto Plc suffered from a drop in iron ore prices, even as its copper unit performed well after a bumper few months for the metal, while BASF SE is dealing with a mismatch between capacity and demand in Europe’s chemicals industry. Among transport names, AP Moller-Maersk A/S cut jobs and reined in costs as the reopening of the Red Sea shipping route threatened to put pressure on container rates, while budget airline Ryanair Holdings Plc provided cautious guidance as geopolitical tensions hurt travel demand. The consumer discretionary industry also saw earnings decline 15% over the fourth quarter, the most out of any sector, with both luxury labels and high-end carmakers facing a subdued consumer, a slowdown in China and tariff pains. Another weak sector was energy, as softer oil prices during the fourth quarter kept a lid on earnings for oil majors.Iran War, AI FearsIn some ways, the first quarter of 2026 will echo the last three months of 2025, as consumer sentiment remains muted and trade uncertainty lingers. At the same time, a war in the Middle East is lifting oil prices and freight rates, while growing fears around AI disruption seep into a slew of sectors spanning analytics, insurance and travel. This changes everything for some industries. Shipping companies like Maersk are now seeing container rates shooting back up again and oil companies will benefit from a spike in crude prices, though production cuts and attacks on oil fields and refineries in the Middle East might offset that. Meanwhile software companies’ future earnings will be scrutinized for any sign of AI displacement.For the top-performing banking sector, though, growth drivers remain the same as lenders are shielded from both the AI selloff and the Iran conflict.

Though Standard Chartered Plc and HSBC Holdings Plc are the most exposed to the Middle East of all European banks, the risks are limited for them, according to Barclays analyst Paola Sabbione. “Exposures are ultimately contained within a group context, with credit risks likely mitigated by high-quality books,” she said. A sustained increase in inflation might also push interest rates higher, supporting the outlook for lending income, while the volatile markets created by geopolitical tensions could provide a boost to trading revenue.Postmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.