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2 of Europe’s biggest banks are taking the ax to costs. They just reported estimate-beating performance

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European banks have struggled to cope with record-low interest rates and an economic downturn that threatens painful levels of credit losses.


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After Barclays
BARC,
-0.10%

kicked off earnings season for European banks late last week with forecast-beating profits, it’s now HSBC
HSBC,
-0.71%

and Santander’s
SAN,
-0.96%

turn. Both banks reported stronger-than-expected performances, as they look to come out of 2020 better off for serious cost cuts.

HSBC comfortably beat analyst expectations, with $785 million in credit losses far below predictions of a $2 billion blow. While pretax profits were down 36% from last year, the bank’s $4.3 billion profit in the period outpaced estimates by $1.5 billion. Buoyed, HSBC’s board is considering restarting dividends this year.

“These were promising results against a backdrop of the continuing impacts of COVID-19 on the global economy. I’m pleased with the significantly lower credit losses in the quarter, and we are moving at pace to adapt our business model to a protracted low interest rate environment,” said Noel Quinn, HSBC Chief Executive.

More: HSBC net profit plunges as pandemic hit continues

Spain’s banking giant upgraded its full-year profit forecast ahead of analyst expectations, announcing that it should deliver €5 billion ($5.9 billion) in 2020 after Santander returned to profitability in the third quarter. Shares in the bank surged by as much as 5% on Tuesday to lead Madrid’s benchmark index.

“Although the outlook for 2021 depends on how the pandemic evolves, we have proven that our strategy and business model position us well to continue supporting our customers and delivering results for our shareholders,” said Ana Botín, Santander’s executive chair.

Performance at both banks will be helped by aggressive cost cuts. HSBC is set to shed more than 31,000 jobs and has an ambitious target to bring costs to below $31 billion this year. 3,000 jobs are expected to be lost, according to Spanish media, as Santander plans to cut an additional €1 billion in costs this year.

Plus: Santander boosts provisions view; more cuts ahead

The outlook: European banks have struggled to cope with record-low interest rates and an economic downturn that threatens painful levels of credit losses. These banks have answered uncertainty by cutting costs.

HSBC also signaled a major strategic shift, reporting that it would move away from interest rate-sensitive operations toward fee-generating businesses. This decision could have ripple effects on the rest of the European banking sector.

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