European Bank Q2 Earnings Season Arrives: Goldman Sachs Forecasts 11% Pre-Tax Profit Growth
Claire Weston
Europe's major banks begin reporting Q2 results this week. Goldman Sachs forecasts 11% year-on-year pre-tax profit growth for the sector, driven by loan expansion and wider margins — but rising bad-debt risk from the Iran war looms overhead.
Why is Goldman calling for 11% profit growth?
Four forces converging at once: loan volume expansion + high rates sustaining margins + non-interest income growth + cost reduction.
Goldman analysts wrote in their client note: the core thesis is "revenue growth driven by scale," with rate upside still providing an additional tailwind.
This means → European banks are in a volume-and-price sweet spot — lending more, and earning more on every loan.
Is the Iran war a tailwind or a headwind for banks?
Short-term tailwind: heightened market volatility boosted trading-desk revenue; rates staying higher for longer continue to support net interest margins.
Longer-term risk: the war drags on European economic outlook, and loan-loss provisions face upward pressure.
In plain terms = traders pocket the volatility gains first, but if the economy deteriorates, loans already on the books may not come back — a double-edged sword.
Who reports first, and what should we watch?
Wednesday: UniCredit and Santander. Thursday: BNP Paribas. UniCredit is pushing ahead with its bid for Commerzbank — considered one of Europe's largest bank M&A battles in decades.
Next week: Barclays, Deutsche Bank, UBS, and BBVA.
French banks' trading desks will face extra scrutiny — both posted weak Q1 trading numbers, and the market wants to see whether Q2 brings a rebound.
How wide is the investment-banking gap?
Morgan Stanley forecasts: UBS IB revenue up 21%, BNP Paribas up only 7%, Société Générale up just 2%.
By comparison, JPMorgan and other Wall Street giants posted IB revenue gains above 30% — the gap is stark.
Morgan Stanley rates Deutsche Bank a buy, calling it "the cheapest bank in our coverage." It is underweight on UBS, partly due to uncertainty from new Swiss regulatory requirements.
Has the "rate-reset drag" cleared for Iberian banks?
Deutsche Bank analysts argue Q2 results "should reinforce the view that the earnings reset from lower rates has largely played out."
Positive net interest margin contribution plus strong loan growth mean the market's focus is shifting from "will earnings fall further?" to "how fast is the recovery?"
This means → for Iberian banks like Santander and BBVA, the worst phase may be over — the question now is how much upside elasticity remains.
Can European banks close the gap with Wall Street?
The EURO STOXX Banks Index has doubled over the past two years, reaching its highest level since the 2007–2008 financial crisis.
Yet U.S. banks keep outperforming — not just on domestic scale, but by taking further share inside Europe itself.
The European Commission last week unveiled plans to curb political interference in bank M&A and remove cross-border banking barriers, aiming to boost competitiveness at the structural level. This reflects a dawning recognition: profit growth alone is not enough — without fixing structural disadvantages, the catch-up remains wishful thinking.
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