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By Steve Slater
LONDON, Nov 9 (IFR) - Spain's BBVA led a fall in Europeanbank stocks on Wednesday due to fears Donald Trump's election asUS president will hit income from Mexico, as well as widerworries about economic uncertainty and the impact on revenuesfrom investment banking and the US.
BBVA shares tumbled 8.5% in early trading. About 30% ofBBVA's income and more than half its profits came from Mexicolast year, and analysts said earnings from there are likely tobe hurt by a weaker peso and the prospect that Mexico could seelower economic growth, higher unemployment and higher fundingcosts.
"The fundamental impact on Mexico's economy is likely tocome from protectionist measures adopted by the country'slargest trading partner, the US," said Stefan Nedialkov, analystat Citigroup, which cut its rating on BBVA shares to "sell".
Santander and HSBC also have big Mexico operations, but areless reliant on the country than BBVA.
Analysts said other European banks were hurt by specificconcerns following Trump's win: HSBC may have a harder timerepatriating its excess US capital; UBS and Credit Suisse couldsee earnings hit if the Swiss franc strengthens against thedollar; and Deutsche Bank, Barclays and others may face stricterregulation for their US operations as well as suffer most from aslowdown in capital markets activity.
Republican Donald Trump defeated heavily favoured HillaryClinton in Tuesday's US presidential election, ending eightyears of Democrat rule.
Bank analysts said the impact of the win on the industry washard to predict, as there were potential positives such as aneasing in regulation or the possibility he will take a morepragmatic view on trade deals and step up government spending tohelp economic growth.
The immediate reaction of financial markets was negative,however. Europe's Stoxx banking index fell 4% to 145.1 pointsin early trading, before paring losses. It was down 1.1% at149.6 points by mid-morning.
By mid-morning, shares in Deutsche Bank and Santander weredown 3%, UBS fell 2%, and HSBC, Barclays and Credit Suisse edgeddown 1%.
Chirantan Barua, analyst at Bernstein, said the main risk tobanks was the risk to earnings in the US due to higher risk,deleveraging and margin compression. Barclays gets about 25% ofits income from the US, and could see a slowdown in the growthof its cards business there.
"It should also result in hits to investment bankingearnings globally, which are anyway going through rough times,"Barua said.
He said second order impacts could include a delay to HSBCreturning excess capital from its US operations (estimated atUS$5bn-$10bn), and an impact on UBS's US$7.4bn of deferred taxassets.
A 1% rise in the Swiss franc against the US dollar alsoequates to downward earnings revisions of 1.5%-2% for UBS andCredits Suisse, Barua estimated.
The impact on regulation could be the most significant issuefor banks, and that is unclear.
There has been a disconnect in US and European regulations,and Trump's win could see him take a harder line on overseasbanks and force their US intermediate holding companies to holdmore capital and liquidity, analysts said.
But Trump has said he is in favour of decreased regulationand would dismantle much of the 2010 Dodd-Frank Act.
He has not given many details on what he would do, but hetold Reuters in May his plans would "be close to dismantling ofDodd-Frank." The sweeping reforms of Dodd-Frank affected allareas of banking, including capital and the setting up of livingwills and other areas such as securitisation. (Reporting by Steve Slater; Editing by Ian Edmondson)
