BBVA leads Europe bank slide after Trump win

By Steve Slater

LONDON, Nov 9 (IFR) - Spain's BBVA (LSE: 931474.L - news) led a fall in European bank stocks on Wednesday due to fears Donald Trump's election as US president will hit income from Mexico, as well as wider worries about economic uncertainty and the impact on revenues from investment banking and the US.

BBVA shares tumbled 8.5% in early trading. About 30% of BBVA's income and more than half its profits came from Mexico last year, and analysts said earnings from there are likely to be hurt by a weaker peso and the prospect that Mexico could see lower economic growth, higher unemployment and higher funding costs.

"The fundamental impact on Mexico's economy is likely to come from protectionist measures adopted by the country's largest trading partner, the US," said Stefan Nedialkov, analyst at Citigroup (NYSE: C - news) , which cut its rating on BBVA shares to "sell".

Santander and HSBC also have big Mexico operations, but are less reliant on the country than BBVA.

Analysts said other European banks were hurt by specific concerns following Trump's win: HSBC may have a harder time repatriating its excess US capital; UBS (LSE: 0QNR.L - news) and Credit Suisse (LSE: 0QP5.L - news) could see earnings hit if the Swiss franc strengthens against the dollar; and Deutsche Bank (LSE: 0H7D.L - news) , Barclays (LSE: BARC.L - news) and others may face stricter regulation for their US operations as well as suffer most from a slowdown in capital markets activity.

Republican Donald Trump defeated heavily favoured Hillary Clinton in Tuesday's US presidential election, ending eight years of Democrat rule.

Bank analysts said the impact of the win on the industry was hard to predict, as there were potential positives such as an easing in regulation or the possibility he will take a more pragmatic view on trade deals and step up government spending to help economic growth.

The immediate reaction of financial markets was negative, however. Europe's Stoxx banking index fell 4% to 145.1 points in early trading, before paring losses. It was down 1.1% at 149.6 points by mid-morning.

By mid-morning, shares in Deutsche Bank and Santander were down 3%, UBS fell 2%, and HSBC, Barclays and Credit Suisse edged down 1%.

Chirantan Barua, analyst at Bernstein, said the main risk to banks was the risk to earnings in the US due to higher risk, deleveraging and margin compression. Barclays gets about 25% of its income from the US, and could see a slowdown in the growth of its cards business there.

"It should also result in hits to investment banking earnings globally, which are anyway going through rough times," Barua said.

He said second order impacts could include a delay to HSBC returning excess capital from its US operations (estimated at US$5bn-$10bn), and an impact on UBS's US$7.4bn of deferred tax assets.

A 1% rise in the Swiss franc against the US dollar also equates to downward earnings revisions of 1.5%-2% for UBS and Credits Suisse, Barua estimated.

The impact on regulation could be the most significant issue for banks, and that is unclear.

There has been a disconnect in US and European regulations, and Trump's win could see him take a harder line on overseas banks and force their US intermediate holding companies to hold more capital and liquidity, analysts said.

But Trump has said he is in favour of decreased regulation and would dismantle much of the 2010 Dodd-Frank Act.

He has not given many details on what he would do, but he told Reuters in May his plans would "be close to dismantling of Dodd-Frank." The sweeping reforms of Dodd-Frank affected all areas of banking, including capital and the setting up of living wills and other areas such as securitisation. (Reporting by Steve Slater; Editing by Ian Edmondson)