EU banks post record earnings, UK banks struggle for deposits

Major banks in the European Union and the United Kingdom benefited from high rates during the third quarter, while others competed for consumer deposits. European banks, including Deutsche Bank , ING , Santander Bank and UBS , reported the strongest performance in15 years in the first half of 2023, according to an Oct. 4 Fitch Ratings report. Fitch attributed the results to high interest rates and expects the trend to continue into 2024. [caption id="attachment_57370651" align="alignright" width="300"] Photo by Vaidik Trivedi [/caption] “Major U.K. banks’ profitability remained strong in [Q3 2023] as higher interest rates supported revenues, although the benefits of rising interest rates to net interest margins are starting to peak, or even decline, due to strong competition for deposits,” according to a Nov. 8 Fitch Ratings report. Lloyds Bank reported a 2.8% drop in customer deposits to 455 million pounds ($570 billion) , according to its Q3 earnings report, a trend banks in the United States, including U.S. Bank and TD Bank , are also experiencing. As Q3 concluded, a few themes emerged from U.K. and EU banks, namely cost control, higher spend on technology and shrinking workforces. Headcount reductions Barclays, Duetsche Bank, Lloyds Bank and Santander Bank prioritized cost savings in Q3, aiming to provide higher returns to shareholders. Deutsche Bank plans to save $2.6 billion annually by 2025 by reducing headcount, increasing efficiency through technology and shrinking its footprint, according to its Q3 earnings supplement. The $578 billion bank aims to close nearly 250 branches in the next three years as digital banking gains traction among its customers. Headcount at the Frankfurt, Germany-based bank increased 6% year over year to 89,260 during Q3, Chief Executive Christian Sewing said during the bank’s earnings call on Oct. 25. However, reductions are expected, Sewing added. Lloyds Bank, too, remained focused on optimizing its workforce through technology and data to remain cost effective, Executive Director and Chief Financial Officer William Chalmers said during the bank’s Q3 earnings call on Oct. 26. The $1.9 trillion bank announced that it will close more than 150 branches by the end of 2024 to trim costs as customers move to digital banking. Similarly, Santander Bank’s headcount in Q3 stood at 212,219, down 0.1% quarter over quarter while the number of branches decreased 1.9% sequentially to 8,652, according to the bank’s Q3 earnings presentation. NatWest also reduced headcount 3% YoY to 61,700, which helped offset operational expenses that reached $113 million, according to the bank’s earnings supplement. Investing in tech While banks pulled back on headcount to reduce costs, investment in technology remained a priority. Barclays, NatWest and Deutsche Bank all looked to tech during Q3 to improve operations. Barclays is exploring ways to improve its digital banking offerings by developing technology, implementing technology or building machines to remain competitive and cost-effective , Chief Executive C.S. Venkatakrishnan said during the bank’s Q3 earnings on Oct. 24. NatWest is looking to customer data to drive deposits amid uncertain macroeconomic conditions. The bank is looking to reduce costs and technology is a key part of the plan, Chief Executive Paul Thwaite said during the bank’s Q3 earnings on Oct. 27. The $890 billion bank is focused “on driving and delivering the outcomes we set out earlier this year — simplification, digitization, and using data and technology to better serve our customers,” Thwaite said. London-based NatWest aims to invest $4.2 billion into operations to future-proof the business between 2023 and 2025, Chief Financial Officer Katie Murray said during NatWest’s second-quarter earnings call in July. NatWest reported net income of $4.1 billion, up 8% YoY while Barclays reported income of $23.1 billion, up by 3% YoY, according to their earnings report. As banks prepare for the upcoming year, Fitch Ratings’ analysts expect NatWest to pay close attention to expense management while increasing investment in technology and competing for customers and their deposits. Get ready for the Bank Automation Summit U.S. 2024 in Nashville on March 18-19! Discover the latest advancements in AI and automation in banking. Register now.

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