European banks are likely to see 120 billion euros ($131 billion) in potential profit disappear over the next three years as the spreading coronavirus upends clients and economies, according to Goldman Sachs Group Inc.
Goldman Sachs analysts led by Jernej Omahen shredded their profit forecasts for the sector through 2023 by 27%, four times the 30-billion euro hit to net income they predicted on March 10, and cut their recommendations on banks including Natixis SA in Paris and Bawag Group AG in Vienna. Lenders across the continent are going to struggle with an increase in soured loans and weaker revenue while costs are likely to stay the same, they wrote.
“The outlook for the sector has, in line with the economy overall, darkened substantially,” the Goldman Sachs analysts wrote.
Investors should stick with systemically important banks, as they are likely to benefit more from the range of measures that regulators have taken to support markets, according to the analysts. They should prioritise diversified lenders that have high levels of profitability and capital, such as HSBC Holdings Plc, Banco Santander SA and BNP Paribas SA.