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* European bank shares turn positive for the year
* Strong trading, fee trends help offset rate pressure
* Deutsche bond trading +31%, BNP fixed-income trading
+62.5%
By Danilo Masoni and Thyagaraju Adinarayan
MILAN/LONDON, Feb 6 (Reuters) - European banks have started
2020 on a strong note, much like their rivals in the United
States, with a revival in bond trading offsetting pressures from
negative interest rates.
The European bank shares index erased all of its
year-to-date losses on Thursday as strong trading and fee
revenues from major banks in the region pointed to a
better-than-expected earnings season.
Although BNP Paribas had to cut profit targets on
Wednesday because of the lower for longer rate environment,
investors reacted positively to the French bank's bumper trading
revenues.
Deutsche Bank reported a 5.7 billion euros ($6.3
billion) annual loss last week on turnaround costs but investors
shrugged off the one-off impact and welcomed a jump in the
bank's cash-cow bond trading business.
Deutsche's shares got another boost on Thursday when Los
Angeles-based Capital Group said it had taken a 3.1% stake.
But European bank shares are trading at record low levels
relative to their Wall Street rivals partly because they have
been losing investment banking market share. Their share of the
investment banking business dropped to 36% in the third quarter
of 2019 from 45% in 2013, data from Coalition shows.
Margin pressures remain strong. But "customers' dynamism and
financial markets performance enabled banks to report decent
toplines," Miguel Raminhos, analyst financial institutions at
Natixis in Paris, said.
"The other good news is the overall strong capital
generation this quarter."
BUMPER BOND TRADING
Fourth-quarter trends at the European banks mirror that of
Wall Street. JPMorgan and Citi's bond trading
revenues jumped 86% and 49%, respectively.
In Europe, BNP Paribas' fixed income trading jumped 62.5% to
820 million euros and returns from equity trading and prime
services rose more than three times.
More clues on how trading is faring at European banks will
come when Barclays, one of the biggest players in bond
trading, reports its fourth-quarter results on Feb 13.
But the outperformance, in part, also reflects the weak
fourth quarter in 2018 when investment banks reported a big drop
in trading revenues due to a sharp sell-off in financial
markets.
Goldman Sachs analysts said European banks' aggregate
pre-tax pro?ts are up more than 15% so far in the fourth-quarter
reporting season, 5% ahead its own forecasts, with gains in
trading and fees lifting overall revenues 3% from a year
earlier.
But one quarter of outperformance does not necessarily
signal a trend.
European banks still have to grapple with negative rates,
slower economic growth, strict capital requirements and more
fragmented markets that put them at a disadvantage compared with
their U.S. rivals.
On Thursday, European banking index was up 1.6% by 1113 GMT,
leading sectoral performers in the region.
($1 = 0.9093 euros)
(Reporting by Danilo Masoni in Milan and Thyagaraju Adinarayan
in London. Editing by Jane Merriman)
