All P&L lines are contributing to upgraded expectations
- A strong set of results with an average pre-provision operating profits beat of 5% and 2025/2026 consensus earnings up ~2%.
- Fees and Trading (+3% QoQ, +2% above consensus) were helped by strong inflows and client activity.
- NII was slightly better (-1% QoQ, +1% above consensus), with significant regional dispersions (+3-4% QoQ at ING.BNP, +0.2% in the UK, -3% QoQ in the periphery). NII in the Nordics was generally much better than feared thanks to pricing discipline (+2% upgrades).
- Costs were down 5% QoQ and 1% better than consensus despite higher variable compensation at investment banks.
- Capital was robust, stable QoQ as banks absorbed the day-1 Basel IV impacts. Handelsbanken released the additional capital buffer above the long-term target range (100-300 bps). SocGen surprised to the upside with a 20 bps capital beat.
A confident tone despite the macro uncertainty
- Guidance was largely upheld, with upside flagged in case of a benign macro environment.
- Banks came across as more optimistic on NII, flagging tailwinds from steeper curves.
- Confidence in the fees outlook was sustained by the market recovery post Liberation day and the strong start to Q2 in trading. On IB, management teams commented that pipelines remain healthy and building, with revenues merely delayed.
- SocGen, Deutsche, Intesa and the Nordics improved their cost outlook.
- Ever-bullish Deutsche Bank CEO went as far as to say that "tariff-related frictions could eventually represent upside potential".
Inflecting volumes, resilient margins and payouts to support a further normalization of valuations
- Having fully recovered from the April sell-off, the sector is trading on 8.4x P.E 25E/26E, a 35% discount to the wider market (cs. a 30% average post-GFC discount).
- The sector continues to offer a cash yield (dividends + share buybacks) of 9% per year over the next three years.
- The strength of bank earnings over the past 19 consecutive quarters should continue to narrow the sector’s discount relative to the broader market.
You can watch the replay here