French Banks Lag Wall Street in Q1 Trading as Dollar, Iran War Weigh on Results
By Mathieu Rosemain
French Banks' Q1 Performance and Market Comparison
PARIS, April 30 (Reuters) - France's BNP Paribas, Societe Generale and Credit Agricole disappointed investors with first-quarter results on Thursday, as their investment banks lagged Wall Street rivals and UBS amid a weaker dollar and as they failed to capitalise on market volatility linked to the Iran war.
Overall, the three listed lenders broadly met market expectations, supported by resilient retail banking and cost controls. That strength, however, did not extend to trading, where results were weaker across the board.
Shares in BNP, SocGen and Credit Agricole were down by 4%, 3.5% and 4.4% respectively in early Paris trading.
Wall Street Outperforms European Rivals
U.S. banks once again delivered bumper trading results, fuelled by market volatility. JPMorgan, Morgan Stanley, Goldman Sachs and Citigroup all reported sharply higher revenues from equities and fixed income trading, benefiting from heavy client activity across rates, commodities and currencies amid geopolitical tensions and shifting expectations for U.S. monetary policy.
French Banks' Subdued Trading Results
By contrast, French banks’ trading performances were subdued.
BNP reported a modest increase in trading revenues, with fixed income largely flat.
Credit Agricole posted the biggest miss overall, with revenue falling short of expectations across several businesses, including in fixed income trading.
SocGen was hardest hit in that particular business, reporting an 18% drop in sales from trading in fixed income, currencies and commodities, citing weaker client activity and tougher European rates markets.
Currency Headwinds and the Dollar Effect
Dollar Drag
Currency moves were a clear drag. All three French lenders generate a significant share of investment banking revenues in U.S. dollars, which are then translated into euros.
The weaker dollar reduced reported earnings even where underlying activity held up.
Global Uncertainty and Safe Haven Flows
That decline came amid heightened global uncertainty. Typically seen as a safe haven, the dollar instead weakened as investors rotated into the euro, yen and gold, amid concerns over U.S. trade policy and political risk.
BNP, SocGen and Deutsche Bank all flagged the dollar effect.
Loan Loss Provisions and Sector Caution
Provisions Rise Cautiously
Away from investment banking, French lenders also raised provisions for potential loan losses, echoing a cautious stance taken across the European banking sector.
The Iran war and its impact on energy prices and global growth prompted banks to build buffers, though executives stressed that asset quality remained sound and that the moves were largely precautionary.
BNP and Credit Agricole both increased provisions, while SocGen's provisioning rose less.
European rivals including Deutsche Bank and Lloyds reported similar trends, suggesting growing caution rather than signs of stress.
Retail Banking Strength and Structural Challenges
What ultimately supported earnings was the strength of domestic retail banking. SocGen benefited from improved margins in its French retail business following changes to savings rates and steep cost reduction.
BNP also saw gains in France and Belgium, while Credit Agricole also saw improved margins in its home country.
Long-standing Investment Banking Challenges
The contrast highlights a long-standing challenge for European banks in the investment banking business.
While retail franchises provided stability, U.S. banks continued to outpace European rivals in trading and investment banking, aided by scale, deeper capital markets and more favourable regulation.
(Reporting by Mathieu Rosemain, Editing by Ingrid Melander and Tomasz Janowski)
