From banks to air conditioning specialists, there are few corners of the stock market left that haven’t been tangled up in Big Tech’s net. That has created plenty of excitement, but also means there are few places for investors to hide if the AI trade goes wrong. Strong results from French bank BNP Paribas on Thursday, however, highlighted why European lenders are becoming one of the more popular hedges.
Revenues rose 12 per cent year on year and net income jumped by a third, to €4.3bn. True, some rivals on Wall Street are growing faster still — Goldman Sachs’ net earnings rose 78 per cent, as tech livens up every aspect of their business.
But some of that was, almost by definition, one-off. Just think of the financial rocket fuel from SpaceX’s record-breaking IPO. Missing out might have bruised some egos inside BNP, but there can only be a handful of such listings, and the fees aren’t even that big in the grand scheme of things. It shouldn’t change how investors think about long-term valuations.
In contrast, BNP’s results relied on more sustainable trends. Revenue in its global banking unit — which includes advising on IPOs — only rose 4 per cent year on year, but revenue in global markets, which includes equity and bond trading, surged 18 per cent to €2.8bn. War in Iran and the growth of big AI companies meant investors bought and sold shares in record amounts. Geopolitical uncertainty doesn’t look likely to fade any time soon.
More importantly, for investors seeking diversification, the rest of the group benefited from local trends that have little to do with tech. Revenues in French retail banking are rising as earlier interest rate rises feed through. That’s a tailwind that should continue to boost BNP and other French lenders through the end of the decade. Likewise in Italy, UniCredit on Thursday upgraded its full-year forecasts after reporting growth across all its core markets.
Meanwhile, both groups have been early beneficiaries of a likely broader wave of consolidation. UniCredit is close to taking control of German rival Commerzbank, while BNP’s insurance and asset management division grew with the €5bn purchase of Axa Investment Managers. Regulators are keen to encourage more M&A to create institutions with the scale to support the EU’s massive long-term investment needs.
There are local risks, too, of course. BNP has touted the opportunities created by the savings and investment union, the EU’s latest attempt to strengthen its capital markets, but previous efforts have repeatedly underwhelmed. Its shares will also inevitably come under pressure in the run-up to next year’s presidential election, when far-right candidate Marine Le Pen is expected to reach the second round of voting.
After a strong rally year to date, European banks have less room to make mistakes. At close to book value, BNP is cheaper than most but still near its most expensive level in over a decade. Indeed, the bank’s shares dipped on Thursday despite the solid results. But when virtually the whole market is being moved by a single trend, investors may just appreciate having something different to worry about.