Europe's Banks Brace for Tougher Competition Under Trump 2.0

European banks face an even tougher task to close an earnings gap on U.S. rivals, as Wall Street awaits a new era of financial deregulation under a second Donald Trump presidency. Lenders in the euro zone and Britain have been hobbled by poor profitability and weak economies since the 2008-09 global financial crisis, while U.S. banks have soared in value and stolen market share, especially in investment banking as European rivals retreated.
Some banks had begun to claw back lost ground this year though. Until this week, European shares were outperforming U.S. peers, and hopes had grown that the U.S. would adopt some elements of the Basel III regulations requiring American banks to hold more capital, helping level the playing field.
The U.S. banking industry is expecting Trump to usher in Republican regulators who ease capital rules and merger approvals and further dilute the contentious Basel III endgame proposal aimed at requiring big lenders to hold more capital. The pace of any deregulation will be determined by new regulators and key policymakers that Trump has yet to nominate, leaving the outlook highly uncertain.
"We can also expect an uptick in regional bank mergers. Comparatively, European banks with their more restrictive regulatory oversight will be competing with one hand tied behind their backs." The long-anticipated wave of European banking mergers and acquisitions has resumed this year, marked by UniCredit's potential takeover of Commerzbank and Banco Bilbao Vizcaya Argentaria’s (BBVA’s) bid for Sabadell. However, neither deal is assured, as both face political challenges.
According to Filippo Maria Alloatti, Head of Financials Credit at Federated Hermes, U.S. banks would likely be the main beneficiaries under Trump’s policies. Nevertheless, international banks with significant U.S. operations, such as Barclays, Deutsche Bank, and Union Bank of Switzerland (UBS), are also expected to experience "positive impacts."

(Source: Reuters)