Strong capital markets drive revenues, profits higher in Q4.

Bolstered by strong capital markets businesses, the large, global investment banks based in Europe reported robust fourth quarter results — and are poised for a solid 2025, says Moody’s Ratings.

In a new report, the rating agency said that the big six European banks — Barclays plc, BNP Paribas, Deutsche Bank AG, HSBC Holdings plc, Societe Generale and UBS Group AG — finished strong in 2024, with fourth quarter pre-tax profits rising by 45% to a combined US$17.4 billion, driven by their strong domestic franchises, along with robust corporate and investment banking.

“Aggregate revenue grew 8% in the quarter, driven by 24% growth in capital markets revenue, reflecting continued strong market activity and a rebound in deal activity,” the report said.

Moody’s noted that all six banks grew their investment banking and capital markets revenues in the fourth quarter, with investment banking revenues rising 21%, revenues in fixed income, currency and commodities rising 22%, and equity revenues up 28%.

The banks’ wealth and asset management businesses also continued to benefit from strong financial markets, which bolstered fee and commission income due to steady client inflows and increased client activity — offsetting slightly weaker net interest income that followed rate cuts by the European Central Bank.

“We expect profit to remain solid, though margin pressure from declining interest rates as well as potentially lower client activity and falling asset prices present risks to the firms’ asset and wealth management businesses,” the report said.

Additionally, the revenues generated by the banks’ investment banking and capital markets businesses, “will remain volatile and subject to market conditions and competition,” it noted.

Against the backdrop of rising revenues, the banks’ operating expenses declined by 3% in the fourth quarter, and loan loss provisions remained moderate, Moody’s said.

“The credit environment remains benign, despite the difficult macroeconomic outlook,” the report said, adding, “Most banks expect charges to remain at moderate levels in 2025.”

“Unless the economic outlook deteriorates more broadly, further additions to reserves will be driven mostly by idiosyncratic loan-specific concerns and will likely remain modest. Commercial real estate fundamentals remain weak, particularly for offices, but the firms exposed to this asset class have already built reserves for these exposures, and charge-offs against these portfolios declined in the fourth quarter,” it noted.

The big banks’ capital and liquidity positions remain strong too, Moody’s said.

“We expect capital to remain largely stable in light of relatively stable profitability outlooks and conservative payout strategies safeguarding the continued build-up of capital and in line with the banks’ targets,” it said — adding that liquidity is expected to stay solid in 2025.