Stronger Capital Market Revenue Outlook for European Banks Amid U.S. Tariffs and Elevated Market Volatility

This commentary presents an update of our 2025 outlook on Capital market revenues for European banks, addressing the heightened volatility and weakening economic outlook driven by the imposition of U.S Tariffs globally.

Key highlights include:
-- Amid persistently higher market volatility, we expect capital market revenues at the European Peer Group to remain stronger than we anticipated.
-- Elevated volatility will likely boost sales and trading revenues for the European Peer Group even further but we also expect weakness in advisory and equity underwriting. The outlook on debt underwriting is less clear.
-- Some vulnerabilities and risks for the European Peer Group have increased, particularly related to exposures to leverage finance and hedge funds, although these risks appear to be contained for now.
"Market volatility is gradually easing from the peak, although we expect it to remain elevated for the remainder of F2025, benefitting capital market revenues at European banks", said Maria Rivas, Senior Vice President and Sector Lead, European Financial Institution Ratings at Morningstar DBRS. "However, the potential consequences of U.S. tariffs and global trade uncertainty are extremely unpredictable and are likely to happen at a much faster speed than in previous crises. We also view that some vulnerabilities and risks for the European Peer Group have increased, particularly related to exposures to leverage finance and hedge funds, although these risks appear to be contained for now".