What’s Going On Here?Santander, Deutsche Bank, and Barclays all reported earnings on Wednesday, and flustered investors kept their distance from the banks' stocks, which fell by 4% or more. What Does This Mean?Let’s start with Santander: the Spanish bank reported its first loss in its 163 years because of “write-downs”. In other words, the bank reassessed the value of businesses like its consumer finance segment, and – realizing they were worth less due to coronavirus – lowered their valuations on its books, in turn knocking its profit.
The pandemic infected Barclays too, with the British bank forced to put more money aside in case of loan defaults than analysts had predicted. But that was – perhaps unsurprisingly by now – partly offset by a boost in its trading segment. The same was true of rival Deutsche Bank, which also benefited from its businesses that advise companies on mergers and acquisitions, as well as the sale of new shares and bonds. Why Should I Care?The bigger picture: Betting on the wrong dog.
While Deutsche Bank had a lot to thank trading for, the firm’s actually been trying to move away from risky activities since 2018. Barclays, on the other hand, has fought tooth and nail to keep risky segments front and center. Bit embarrassing: its trading business did well last quarter, sure, but not as well as its big US rivals (tweet this). Throw in uncertainty over whether it’ll be able to pay a dividend and its admission that the rest of the year – hobbled by low interest rates that make it harder to profit from loans – won’t be great, and it might make sense why investors ditched its stock on Wednesday.
Zooming out: There’s a good boy.
When Credit Suisse reveals its update on Thursday, it’s expected to follow in, er, its own footsteps by announcing sweeping restructuring measures. Put simply, the Swiss bank’s likely to combine its advisory and trading segments in an effort to improve its profitability. | 