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Should You Buy Europe Financial ETF EUFN on Earnings Strength?
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The global banking sector came under stress this year following failures of some banks including the behemoth Credit Suisse in early phase of this year. As a result, banking sector earnings for the second quarter have become much-awaited. Notably, iShares MSCI Europe Financials ETF (EUFN - Free Report) is up 10.8% this year, up 1.6% in the past three months, down 3.6% in the past one month and up 3.1% in the past five days.
The fund has 8.42% weight in Hsbc Holdings Plc, 4.63% focus on UBS Group, 4.05% weight in BNP Paribas and 3.6% focus on Banco Santander. All of these banks have presented upbeat earnings over the past one month with the UBS being the latest winner. Against this backdrop, we can conclude that EUFN may gain strength ahead on account of earnings strength despite the apparent economic slowdown.
Inside the Earnings Details
Inside HSBC’s Upbeat Earnings
A month ago, Europe’s biggest bank HSBC’s profits have soared as it continues to cut costs and cash in on high interest rates around the world. Its pre-tax profit grew by $4.1 billion from the year-ago quarter to $8.8 billion in the second quarter. That beat analyst expectations of about $8 billion. Revenue also rose by $4.5 billion to $16.7 billion. The strong performance led the London-based lender to boost its outlook for the rest of the year, citing the current consensus for global interest rates.
HSBC now projects a return on tangible equity — a key measure of profitability — “in the mid-teens for 2023 and 2024, which excludes the impact of material acquisitions and disposals,” as quoted on CNN. Not only this, HSBC also indicated that it would execute another share buyback of up to $2 billion.
UBS Reports Bumper Profit Too
On Aug 31, UBS Group announced the full absorption of Credit Suisse's domestic bank, aiming for over $10 billion in group-wide cost savings. This coincided with UBS's first post-takeover earnings report. The substantial profit surge at UBS resulted from a significant one-time gain due to acquisition costs well below Credit Suisse's valuation.
UBS reported a $29 billion Q2 net profit, including just one month of Credit Suisse earnings. Both entities will operate separately until their planned 2024 merger, with client migration completing by 2025. Expected cost savings by end 2026 exceed the prior $8 billion estimate, primarily from workforce reduction, involving 1,000 job cuts in late 2024 and an additional 2,000 due to Credit Suisse's restructuring.
BNP Paribas Beats Estimates
In Q2, BNP Paribas, one of the largest euro zone banks, exceeded predictions due to strong cost management and a robust corporate debt financing arm, countering a securities trading downturn. Its Q2 net income fell 4.9% to 2.81 billion euros ($3.12 billion), surpassing the estimated 2.49 billion euros. Group revenue slightly decreased by 1.5% to 11.4 billion euros, still surpassing expectations. Provisions for potential loan losses were lower at 689 million euros. BNP reaffirmed its 2025 targets.
Santander Reports Record Profit Despite Special Tax
The Spanish lender Banco Santander reported a record profit for the first half of the year despite a windfall tax imposed on banks, as rising interest rates lifted its earnings. Banco Santander is the latest European banking giant to receive a boost from central bank rate hikes aimed at taming high inflation. Over the first six months of the year, its net profit reached a record 5.2 billion euros ($5.8 billion), up 7% from the same period in 2022.
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Should You Buy Europe Financial ETF EUFN on Earnings Strength?
The global banking sector came under stress this year following failures of some banks including the behemoth Credit Suisse in early phase of this year. As a result, banking sector earnings for the second quarter have become much-awaited. Notably, iShares MSCI Europe Financials ETF (EUFN - Free Report) is up 10.8% this year, up 1.6% in the past three months, down 3.6% in the past one month and up 3.1% in the past five days.
The fund has 8.42% weight in Hsbc Holdings Plc, 4.63% focus on UBS Group, 4.05% weight in BNP Paribas and 3.6% focus on Banco Santander. All of these banks have presented upbeat earnings over the past one month with the UBS being the latest winner. Against this backdrop, we can conclude that EUFN may gain strength ahead on account of earnings strength despite the apparent economic slowdown.
Inside the Earnings Details
Inside HSBC’s Upbeat Earnings
A month ago, Europe’s biggest bank HSBC’s profits have soared as it continues to cut costs and cash in on high interest rates around the world. Its pre-tax profit grew by $4.1 billion from the year-ago quarter to $8.8 billion in the second quarter. That beat analyst expectations of about $8 billion. Revenue also rose by $4.5 billion to $16.7 billion. The strong performance led the London-based lender to boost its outlook for the rest of the year, citing the current consensus for global interest rates.
HSBC now projects a return on tangible equity — a key measure of profitability — “in the mid-teens for 2023 and 2024, which excludes the impact of material acquisitions and disposals,” as quoted on CNN. Not only this, HSBC also indicated that it would execute another share buyback of up to $2 billion.
UBS Reports Bumper Profit Too
On Aug 31, UBS Group announced the full absorption of Credit Suisse's domestic bank, aiming for over $10 billion in group-wide cost savings. This coincided with UBS's first post-takeover earnings report. The substantial profit surge at UBS resulted from a significant one-time gain due to acquisition costs well below Credit Suisse's valuation.
UBS reported a $29 billion Q2 net profit, including just one month of Credit Suisse earnings. Both entities will operate separately until their planned 2024 merger, with client migration completing by 2025. Expected cost savings by end 2026 exceed the prior $8 billion estimate, primarily from workforce reduction, involving 1,000 job cuts in late 2024 and an additional 2,000 due to Credit Suisse's restructuring.
BNP Paribas Beats Estimates
In Q2, BNP Paribas, one of the largest euro zone banks, exceeded predictions due to strong cost management and a robust corporate debt financing arm, countering a securities trading downturn. Its Q2 net income fell 4.9% to 2.81 billion euros ($3.12 billion), surpassing the estimated 2.49 billion euros. Group revenue slightly decreased by 1.5% to 11.4 billion euros, still surpassing expectations. Provisions for potential loan losses were lower at 689 million euros. BNP reaffirmed its 2025 targets.
Santander Reports Record Profit Despite Special Tax
The Spanish lender Banco Santander reported a record profit for the first half of the year despite a windfall tax imposed on banks, as rising interest rates lifted its earnings. Banco Santander is the latest European banking giant to receive a boost from central bank rate hikes aimed at taming high inflation. Over the first six months of the year, its net profit reached a record 5.2 billion euros ($5.8 billion), up 7% from the same period in 2022.