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Snail Trail

Finimize

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What’s going on?

Italy’s largest bank, Unicredit, and Germany’s second-largest, Commerzbank, both reported third-quarter results on Thursday. The two are slowly sliding in opposite directions: Unicredit up and Commerzbank down.

What does this mean?

Commerzbank’s update disappointed investors – plus, the bank now thinks its profit this year will be lower than it was last. That’s partly down to a persistently weak German economy, where Commerzbank does the majority of its business – and negative eurozone interest rates, meaning banks have to pay rather than receive interest on their cash.

But credit where Unicredit’s due: the Italian bank beat investors’ third-quarter predictions. That was thanks to earnings from its risky trading business offsetting pains from its falling interest income. But, according to the European Union’s updated economic forecasts (also released on Thursday), Italy’s economy’s not likely to recover much any time soon. Its already too-high debts will increase, which might make Unicredit’s future progress more al dente than its investors hope.

Why should I care?

For markets: Stocks show investors’ feelings.

Commerzbank’s stock fell 1% after its report while Unicredit’s rose 6%. Given how important a country’s banks are to its economy, those share price moves offer a clue as to how investors are feeling about Germany and Italy. European banks and their investors alike will hope that the European Central Bank finds new ways to boost the region’s economy and, by extension, their prospects. In the UK, meanwhile, the Bank of England announced the country’s positive interest rates would be left unchanged. (Though a couple of pesky decision-makers wanted to lower rates, which would’ve been bad news for British commercial banks.)

The bigger picture: No bank – or continent – is an island.

The US’s trade wars hurt Europe too, by way of weaker Chinese spending and direct tariffs against the bloc. But investors are hopeful that a US-China truce will turn China once again into a voracious buyer of European companies’ wares – boosting their earnings, eurozone economic activity, and banks’ fortunes in tandem.

Originally Posted on November 7, 2019 – Snail Trail

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