Banking On It… Or Not

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What's going on?

Thursday was another mixed day at the office for European banks. The sun shone on German Commerzbank and French Société Générale shares after they announced better-than-forecast results – but autumn showers came in bucketloads for Italian Unicredit.

What does this mean?

SocGen’s profit beat expectations last quarter, in part due to stable revenues at its investment trading divisions which contrasted with those of several French rivals. Commerzbank, meanwhile, posted a sharp decline in its own profit – but not by as much as investors expected, as the German lender’s new, slimmed-down strategy seemed to put it on track to win new, albeit different-looking customers in the future.

Unicredit had less good fortune: investors sent its stock down 4% as it swallowed a $1 billion loss on its stake in a Turkish bank thanks to the country’s currency woes, as well as putting hundreds of millions of dollars aside to pay potential swingeing fines from the US for conducting prohibited business in Iran.

Why should I care?

For markets: European banks are a mixed bag.

Banks in the continent are lagging US rivals when it comes to revenue and profitability. Despite some signs of improvement from the likes of SocGen and Commerzbank, the woes of Unicredit demonstrate just how far behind some European banks have fallen. And with new European Union forecasts out on Thursday predicting grim growth for the Italian economy, there may be more tough days to come.

The bigger picture: European banks are a mixing bag.

European banks have been looking to mergers and acquisitions to help spread what little love there is around. Some firms have been busy snapping up niche investment banks, while SocGen took over some of Commerzbank’s German business earlier this year; and if UniCredit’s shares get even cheaper, rumors of a merger between the two of them might also be reignited. Who doesn’t love a bargain?

Originally posted as part of the Finimize daily email.

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