Europe's FICC monsters could awaken under Trump

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In a note published on November 11, analysts Mike Harrison and Jeremy Sigee highlight Credit Suisse, Deutsche Bank and BNP Paribas as banks whose fixed income, currencies and commodities businesses could benefit from a return in volatility if the era of low interest rates comes to an end under Trump’s expected fiscal stimulus.

A rise in rates would also help European banks with large dollar or dollar-pegged deposits such as HSBC and Standard Chartered, Barclays‘ analysts added.

Harrison and Sigee say the rates discussion is just one of seven Trump-related debates that they believe will affect the fortunes of European banks.

The other six are:

• Basel IV

Less involvement from the US may mean either that the final regulation is more EU-friendly, or that the US takes a tougher negotiating stance and drags out the talks. The winners here are likely to be banks that have pre-capitalised for Basel IV such as ABN Amro and Swedbank; “thinly capitalised” international banks like BNP Paribas, Santander and BBVA; and banks with low risk-weighted business lines such as investment banking, including UBS, Deutsche Bank and Credit Suisse.

• Dodd-Frank

Barclays points to uncertainty around Trump’s stance on regulation, noting that he appears to want to repeal the Dodd-Frank Act but has also suggested a new version of the Glass-Steagall act that separated commercial and investment banking. Barclays reckons the winners here will be those European banks whose US operations are “broker-dealer pure-plays”, such as Deutsche Bank, Credit Suisse and UBS. Banks with retail and investment banking operations in the US, may lose out.

• Litigation settlements

Banks with litigation overhangs, such as Deutsche Bank and Credit Suisse, could benefit from any push to accelerate litigation settlements and allow Democrats at the Department of Justice to end their tenure with “a sense of achievement”.

• Globalisation

Trump’s “admiration” of Vladimir Putin means that “geopolitical risks from a US/Russian escalation appear less pronounced”, Barclays says. That could benefit banks with Russian and eastern European franchises such as Societe Generale and KBC. There may not be such good news for banks with Asian and Latin American franchises.

• The UK and Brexit

Trump’s use of the Brexit vote as a point of comparison while on the campaign trail and an expectation that he will be keen to strike a trade deal with an independent Britain is good news for UK banks like Virgin Money and Lloyds Banking Group, as well as non-EU banks affected by EU passporting rules.

• Populism

Barclays’ analysts note that “Trump’s victory is not only likely to give more focus to populist movements but to embolden them, too”, adding that Europe has a “congested political calendar in the next few months”. At the extreme, they say, risks are rising of increased Europe fragmentation. Nordic banks where “issues of populism appear more contained” are highlighted as winners by the Barclays team – not so banks with exposure to countries with upcoming referendums or elections.

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