How European banks outperformed in Q1 2025 despite global headwinds

Key takeaways from European banks’ Q1 2025 results:

1. Credit quality steady as banks strengthen buffers

Despite escalating economic uncertainty, European banks did not see any deterioration in asset quality. Leaders noted that while corporate clients are adopting a “wait-and-see” approach - pausing large capital expenditure investments - they have not made significant liquidity drawdowns, unlike during the COVID -19 pandemic. So, there are no immediate signs of distress. Consumer behavior remains steady, with no material shifts in spending patterns or de-risking of portfolios from assets under management to deposits.
 

Although asset quality indicators are holding firm, European banking leaders still took a cautious stance, increasing buffers against potential future loan losses by 13% year -on- year. This mirrors trends in the US, where banks reported resilient credit metrics but raised provisions by 22%. The consistent message from both regions was clear: underlying client resilience is encouraging, but risk management remains a priority.
 

Reflecting this caution, analysts nudged full - year provision estimates upward - 1% for European banks³ and 3% for US banks.
 

2. Fee income benefitted from volatility 

Market volatility in the first quarter turned out to be a boon for trading desks, sending revenues to their highest levels since Q1 2010. Equity trading surged 31% year -on- year as clients rushed to rebalance portfolios amid shifting global dynamics. Similarly, fixed income, currencies and commodities (FICC) trading saw strong demand from corporate clients seeking protection against rate swings and currency risk.
 

Meanwhile, wealth management divisions continued to deliver standout performances. Rising inflows and buoyant markets drove revenues higher, validating banks' strategic bets on this capital-light, high-return segment.
 

However, deal-making activity faced headwinds as clients deferred mergers and acquisitions (M&A) decisions, adding to record backlogs. While no large deals were called off, banking executives noted that clients were waiting for more clarity on trade policies before proceeding.
 

Overall, European fee income grew 9% year -on- year compared with 8% for US banks. But with equity markets retreating in April and M&A transactions slowing, analysts have downgraded their full-year fee income forecasts by 1% for both regions.

3. NII defied rate cuts

European NII saw a year-on-year increase of 4%, defying pressure from multiple interest rate cuts delivered by major central banks over the past year. This resilience reflects deliberate efforts by banks to reduce the rate sensitivity of their balance sheets —including expanding bond portfolios, implementing structural hedges and actively managing the repricing of liabilities ahead of assets.
 

Notably, while rate expectations have shifted materially in recent weeks, with markets now pricing in more cuts than they did in the previous quarter, no European bank downgraded its full-year NII guidance — a decision that drew scrutiny from analysts. Banking leaders defended their outlooks by highlighting several tailwinds, including a steeper yield curve that would support higher bond portfolio income, better-than — expected deposit growth trends, and pockets of improving loan demand. These were seen as sufficient to counter the impact of rate cuts — at least for now.
 

We saw a similar trend in the US, where banks delivered 1% year-on-year NII growth despite three interest rate cuts from the Federal Reserve during the year.