Proactive Investors - Barclays PLC (LON:BARC) is among the top picks in the European financial sector, according to a new research note from JP Morgan (JPM).
It highlights Barclays and Deutsche Bank (ETR:DBKGn) (DBK) as key players set to benefit from trends in investment banking seen in the recent results from the US.
JPM maintains a positive outlook for Barclays, expecting it to perform well as it gears up for third-quarter earnings.
The analysis draws from the performance of US banks like JP Morgan Chase (NYSE:JPM) (JPMC) and Wells Fargo (NYSE:WFC), which recently reported strong earnings in equities trading and investment banking deals (IBD).
For instance, JPMC saw a 27% year-on-year rise in equity trading revenue and a 31% rise in IBD revenue.
This positive momentum in America bodes well for European banks like Barclays, which is expected to see more favourable comparisons in its own investment banking business, especially in areas like fixed income, currencies, and commodities (FICC).
JP Morgan also pointed out that while the US banks face a slower outlook for loan growth, with commercial loans declining slightly, Europe is expected to see limited loan growth in 2024, estimated at just 1%.
However, JPM sees no significant issues with asset quality in either market, meaning European banks are not facing an uptick in loan defaults or risky loans.
One area where European banks could outperform their American counterparts is in cost control.
JPM estimates that while the broader European banking sector will see a modest 2% annual cost increase from 2024 to 2026, both Barclays and Deutsche Bank are expected to keep costs flat during this period. This ability to manage expenses efficiently could help improve profitability.
Another factor is net interest income (NII)—the difference between the income a bank earns on loans and the interest it pays on deposits.
Stateside, banks have started seeing NII plateau, with a possible trough (low point) by mid-2025. In Europe, however, NII trends are expected to be more stable, with deposit rates lower than in the U.S.
In early afternoon trading, Barclays was down 1% at 233.45p.