European bank shares have moved sharply (in both directions) since Donald Trump won the US presidential election.

Analysts at Barclays Capital reckon this reflects the very wide range of views about what a Trump presidency means in practice.

On Friday the bank’s London-based equity team listed a number of big debates around how the Republican Party win may affect European lenders.

The era of low rates could be over

Trump’s focus on fiscal stimulus and supply-side reform lies in stark contrast to the current primacy of monetary policy around the world. 

This comes at a time when the confidence in the efficacy of monetary policy appears to be on the wane in any event.

“Shifting the focus of the rates debate would undoubtedly be helpful for the revenue outlook at European banks,” said Barclays’ Mike Harrison.

“In today’s low rates environment, most European banks trade at a discount to their book values because they are struggling to deliver returns in excess of their cost of equity.”

Harrison added that some degree of normalisation of the rates environment would reduce the concerns over the viability of bank business models, with or without economic growth. 

Two areas, however, remain unproven. How much pass-through to Europe might we see from potentially higher US rates/inflation? And will fiscal policy really be more stimulative than monetary policy? 

Basel IV goes nowhere

Trump’s election campaign presented a vision for the US that was both less weighed-down by regulation – but also less engaged in shaping global consensus. 

If the Bank for International Settlements (BIS) miss their self-imposed end-2016 deadline for finalising Basel IV,  the house view at Barclays is that the US input into Basel IV may reduce once Mr Trump comes to power.

“The bull case here is that US disengagement facilitates a more EU-friendly Basel IV that gets finalised next year,” added Jeremy Sigee, also an analyst at Barclays.

“This reduces the risk that EU banks find it harder to compete with less-RWA constrained US banks. Furthermore, clarity on the rule-book will make it easier for European banks to deploy capital, further supporting business models.”

The bear case is that the US adopts a tougher negotiating stance since there’s little for them to gain from a benign Basel IV.

"Hence, Basel IV talks would drag on into 2017 (and beyond), limiting EU banks’ ability to deploy capital efficiently," Sigee said.

No more Dodd-Frank

Trump appears committed to reducing regulation in general, although the specifics for the banking industry are a little uncertain.

His position appears to be that the Dodd-Frank act should be repealed. However, as recently as last month, Trump was advocating the introduction of a “21st century” version of Glass-Steagall – the 1933 law that required the separation of commercial and investment banking.

“We would note that on the specific issue of European banking presence in the US, Mr Trump has so far been non-committal,” wrote Harrison.

Possible winners: US operations that are broker-dealer pure-plays (Deutsche Bank, Credit Suisse, UBS)

Possible losers: universal banks which have both retail and IB operations in the US (BNP Paribas, HSBC)

Litigation settlements happen sooner and cheaper

The sweeping Republican victories on November 9 mean that some of the Democrat appointments at the US Department of Justice have only a few weeks left before they are replaced.

Accelerating litigation settlements with banks may be one way to end a DoJ tenure with a sense of achievement. Swifter resolution would likely result in smaller settlements for the banks, since larger fines could lead to (potentially lengthy) court cases.

Possible winners: banks with on-going litigation overhangs (eg Deutsche Bank, Credit Suisse)

Possible losers: banks which have not yet started substantive discussions with the DOJ (RBS), although if settlements for other banks are benign, then this could improve things for them too 

Globalisation heads into reverse

A wall with Mexico. Tariffs on Chinese exports to the US. Less open global trade arrangements. The prospect of a more protectionist US has so far been met by a nervous response from several EM currency markets.

"Whilst it is difficult at this stage to gauge the extent of – and crucially, the reaction to – greater US protectionism, it suggests that banks which rely on an Asian or LatAm footprint as an engine of growth may encounter some headwinds," added Sigee.

By contrast, the geopolitical risks from a US/Russian escalation appear less pronounced given Trump’s stated admiration of Mr Putin.

However, if the US is less prepared than before to play the role of world policeman, this implies that contingent geopolitical risks may indeed be higher.

Possible winners: Russian/Eastern European franchises (SocGen, KBC)

Possible losers: Asian/LatAm franchises (ING, Credit Suisse, HSBC, Standard Chartered, BBVA)

Populism in the EU 

Europe faces a congested political calendar in the next few months – from a referendum in Italy in the coming weeks to general elections in France, Germany and the Netherlands in 2017.  

Barclays analysts note there are are substantial anti-EU movements in each of these countries who are explicitly drawing linkages with Brexit and Mr Trump’s election success. 

"Even if Populist parties do not gain power, there is scope for them to shift the political debate towards their agenda as incumbent parties look to shore up their voter base," added Harrison.

"At the extreme, this suggests that risks may be rising of increased European fragmentation in the coming years."

Possible winners: Nordic banks where issues of populrism appear more contained (DnB, Danske, Swedbank) potentially the UK too, now the Brexit vote has been decided.

Possible losers: exposures to countries with forthcoming elections/referendums in Italy, France, Germany and the Netherlands (Unicredit, Credit Agricole, Commerzbank, ING).