In the 3Q, European banks reported earnings in 3Q24 that beat consensus by +7% on average at the PBT level. The majority of the beat came from lower provisions (-14%), while revenues on the contrary were only marginally better than expected (+2%) with NII surprising to the upside in the UK, the Nordics, and Italy, while some of the large Core banks struggled to match expectations.
Despite the solid performance YTD, we are confirming our positive view on the EU banking sector, which still remains at an attractive absolute level compared to the tights registered in late 2021 and, though to now a more limited degree, compared to Non-Financial Corporates instruments. With central banks being now immersed in a cut cycle and inflationary pressures continuing easing, we see banks outperforming corporates on the back of a “soft landing” base case scenario for Europe, which we see supportive of bank earnings and asset quality.
Similarly, given the strong run reported YTD and the compression achieved across the capital structure, we are confirming our preference for Senior Non-Preferred over Subordinated bonds and, mostly due to technicals, Senior Preferred debt. Also, we confirm our neutral view for AT1 instruments while acknowledging that technicals play in the asset class’ favour for the remainder of the year.
Below we include our top trade ideas into YE while in the report you will find our take on single names in our coverage as well as BBVA’s relative analysis across asset classes and currencies (now including $).
Top trade ideas into 2025 included in our report:
Senior Preferred:
- Buy SANTAN 3.5% ‘30
- Buy CAJAMA 1.75% ‘28 & CAJAMA 4.125% ‘30
- Buy DB 4.125% ‘30
Senior Non-Preferred:
- Buy BNP 0.5% ‘30
- Buy UBS 0.65% ’28 & UBS 7.75% ‘29
- Buy DANBNK 3.875% ‘32
Tier 2:
- Buy TPEIR 7.25% ’34
- Buy NDAFH 4.625% ’33 ($)
- Buy CAJAMA 5.25% ‘31
AT1:
- Buy SANTAN 3.625%
- Sell DB 6.75%
- Buy SOCGEN 8.125% ($)