After major U.S. banks reported generally positive Q2 earnings, investors now turn their attention to see if European banks can match. The first movement of that composition comes Thursday, when Deutsche Bank and BNP Paribas announce results.
The earnings come as many European bank stocks find themselves at multiyear highs and registering Relative Strength Ratings on par with U.S. counterparts. Deutsche Bank is trading at the highest level in 10 years, up 98% year-to-date and on pace for a ninth straight month of gains. It is now extended above the 29.07 buy point of a flat-base breakout on June 24.
Deutsche Bank reported adjusted EPS of 86 cents, up from a 30-cent loss a year ago. Analysts expected the bank to earn 82 cents a share, according to FactSet.
Revenue climbed almost 10% to $9.05 billion, easily topping views for $8.98 billion. Investment banking income rose less than 5%, to $2.95 billion.
The quarter marked a rebound in revenue growth and an acceleration in earnings.
Deutsche Bank has a 94 Composite Rating, and a 21-day average true range (ATR) of 2.08%. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
With the S&P 500 and Nasdaq now in a power trend, investors can buy stocks with ATRs up to 8%, though they should be wary of being too concentrated in high-octane names.
Bank Earnings, Deutsche Bank Peers
Earnings for BNP, France's largest lender, came in at $3.10 per share, well above analysts expectations for a 1% loss to $1.53. Fixed income and currency trading drove revenue to $14.763 billion, clearing views for $14.635 billion, according to FactSet. Global banking, commercial and personal banking revenues were flat.
The results sent U.S.-traded shares of BNP just beyond the buy range from the 43.98 entry of a cup-without-handle base, according to IBD MarketSurge pattern recognition. The buy range goes to 46.18.
The stock is up 50% this year and trading at its highest since the 2008 financial crisis, currently on track for an eighth consecutive monthly increase. There's no Composite Rating for the Paris-based bank. Its ATR is 1.27%.
European Bank Earnings, Outlook
European banks face margin pressures as central banks cut interest rates. But a favorable mix on both the deposit and lending sides will offset some of that squeeze, Morningstar analysts said in an industry report last month. Net interest margins are less sensitive to interest rates than is often thought, as long as rates remain positive.
"A structural change in net interest margins following the return of normal monetary policy is the main driver of increased profitability," analysts wrote. "Abnormally low net interest margins also obscured the major efficiency progress. Credit losses should increase from their current lows, but we think there has been an improvement in credit quality."
Next week, Spain-based Santander and U.K.-based Barclays announce results.
Analysts expect Santander's earnings to climb nearly 19% to 26 cents a share on a 7% rise in revenue to $18.165 billion, per FactSet. The stock is ahead 86% since the start of the year and has formed a three-weeks-tight pattern with an 8.90 buy point. Its Composite Rating is 97 and the ATR is 2.05%.
Barclays's EPS are expected to jump 36% to 58 cents a share, on an 18% rise in revenue to $9.523 billion. The bank's U.S. shares are at the highest since January 2014.
Switzerland-based UBS Group will announce results July 30. Analysts expect EPS to surge 86% to 55 cents a share. The stock is up 7% from a 34.56 buy point it topped July 2. UBS has a Composite Rating of 90, an ATR of 1.74% and a year-to-date gain of 20%.
Canadian Bank Earnings
UBS analyst Jill Shea wrote in a note to clients Monday, that while the macro and geopolitical landscape is fluid, Canadian banks come into earnings season with some tailwinds, including bolstered allowances for credit losses and exposure to businesses that seem poised to continue to perform well.
Some optimism is already priced in, the analyst added. Still, "We are increasingly optimistic of the earnings power and ROE (return on equity) trajectory of this group."
Royal Bank of Canada is up 4% from the 128.05 buy point of a cup base. BMO and Toronto-Dominion Bank, the parent company of TD Bank, are both extended from their most recent breakouts. The three Canadian banks' earnings are due in a few weeks.
India Bank Earnings
The biggest foreign banks are in IBD's money center banking industry group, which is ranked No. 39 and up 50% from the April market low. The group also includes major U.S. banks such as JPMorgan Chase and Bank of America.
IBD's foreign banks group is ranked even higher, in the top 20 of 197 industry groups for at least three months. The group is up more than 20% year to date, and up more than 30% from the April stock market low. But the group's chart shows the relative strength line has been trending lower since late May. The bearish divergence from the industry index suggests a pullback is coming.
But so far, most leading stocks in that group show no clear sell signals.
Last weekend, Icici Bank and HDFC Bank beat quarterly estimates. U.S.-traded shares of the two India-based banks gapped up Monday and continue to advance.
The earnings came at a time when India's banks struggle with margin pressures, weak fee income and rising credit costs, reports say. But in its earnings announcement Saturday, HDFC said its "credit performance across all segments continues to remain steady, in a credit environment that remains benign."
Icici shares are trying to break out of a flat base with a 34.50 buy point. HDFC stock is near all-time highs after finding support at the 10-week moving average.
