By Sinead Cruise and Lawrence White
LONDON (Reuters) – With international trade ties in tatters and confidence in the global economy plumbing fresh depths, Europe’s leading banks are confronting a possibility that their strongest quarter of 2025 may already be behind them.
The promise of a banner year for lending and investment banking activity soured in April after the U.S. said it would impose double-digit tariff hikes on dozens of trading partners, sparking mayhem in financial markets and sending global recession risks sharply higher.
The first-quarter European bank reporting season – which continues with France’s BNP Paribas on Thursday and culminates on May 2 – might represent the year’s peak earnings for some of the region’s top names.
Investors and analysts are predicting slower revenue growth and a deeper push into higher risk lending, with possible implications for dividends, share buyback programmes, and provisions against future loan losses.
“While uncertainty persists, we do not expect a repeat of the stellar Q1 but do believe European banks can continue to grind out relative outperformance, particularly given discounted valuations,” William Howlett, financials analyst at Quilter Cheviot, told Reuters.
“We believe this environment tends to favour the higher-quality banks which typically generate higher profitability as measured by return on tangible equity,” he added.
Beyond business volumes, concerns about credit quality are also emerging.
In its March Default Report published on April 17, Moody’s Ratings upped its baseline global default rate for end-2025 to 3.1% from 2.5%. This figure almost doubles to 6% under its most pessimistic modelling.
One senior banking industry executive told Reuters European banks were already under pressure to set aside cash against loan losses as the probability of more negative economic scenarios increases.
In a replay of events that saw banks collectively take billions of dollars in provisions during the COVID-19 era, some lenders may take action this quarter in conjunction with revised guidance, the person said.
U.S. banks JPMorgan Chase, Goldman Sachs and Morgan Stanley all reported higher first-quarter profits boosted by hopes of a golden age for dealmaking and corporate growth earlier in April, but executives warned of rocky times to come.
Gaurav Arora, head of global competitor analytics at Coalition Greenwich, said a surge in client demand for portfolio rebalancing would likely drive sales and trading revenues across the sector, but growth in transaction banking, advisory, and underwriting revenues would be more subdued.
