European Banks Face $34 Billion Coronavirus Hit, Goldman Says

(Bloomberg) --

European banks will see about 30 billion euros ($34 billion) erased from their net income over the next three years as a result of the fallout from the coronavirus, analysts at Goldman Sachs Group Inc. estimated.

The profit erosion, equivalent to 7% of their total, will be driven by increased credit risk, weaker revenue and broadly flat costs, analysts including Jernej Omahen and Jean-Francois Neuez wrote in a note Tuesday.

The Stoxx 600 Banks Index rebounded 5.3% from a market-wide sell-off on Monday that dragged the gauge down 11% amid concerns over the coronavirus and bad loans after the price of oil plunged. Banks also face the prospect of seeing their margins squeezed by cuts to already-low interest rates as central banks attempt to lessen the economic impact of the virus outbreak.

Lenders with low levels of profitability in Germany, Italy and Greece will be disproportionately affected by the virus fallout, while French, Benelux and large global lenders will fare best, the analysts said.

Goldman Sachs favors lenders such as BNP Paribas SA, ING Groep NV, Banco Santander SA and HSBC Holdings Plc and Central and Eastern European banks such as Erste Group Bank AG or Bank Pekao SA.

“Overall, European banks today are in a stronger position than at any point over the past decade,” in terms of financial strength, the analysts said. Their forecasts therefore reflect an “earnings power issue.”

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