Banco Santander, a prominent Spanish banking institution, has surpassed Switzerland’s UBS to become the largest bank in continental Europe by market capitalization. This shift comes amid the turmoil inflicted by U.S. tariffs on the banking sector across the region.
As of the market close on Wednesday, UBS’s market capitalization stood at 79.5 Swiss francs (approximately $97.23 billion), in stark contrast to Banco Santander’s capital of 91.3 billion euros (roughly $103.78 billion), as reported by FactSet. Since the announcement of U.S. President Donald Trump’s trade tariffs on April 2, UBS’s shares have sharply declined by 17.2% this year, while Banco Santander has seen a substantial increase of nearly 35%, according to data from LSEG.
Both banks, along with the broader European banking sector, have faced challenges following the introduction of the White House’s protectionist policies. The economic landscape has worsened, with diminished growth prospects for European economies impacted by these tariffs, raising concerns about a potential recession in the United States.
Washington initially imposed a 20% tariff on EU imports but subsequently reduced it to 10% during a 90-day reprieve announced by Trump on April 9. Conversely, Switzerland, not being part of the EU, is set to face a steeper 31% tariff once the pause concludes. The Trump administration has also threatened further levies on imported pharmaceuticals, which could adversely impact the robust growth of Switzerland’s pharmaceutical sector, a significant contributor to the nation’s exports in the last quarter.
In a broader context, European banks have experienced a boost following the March announcement of the European Union’s ReArm initiative. This initiative aims to relax fiscal rules within the region, paving the way for increased borrowing and defense spending.
U.S. exposure
The two leading banks in continental Europe exhibit distinct levels of exposure to the American market.
Banco Santander ranks as the fifth-largest auto lender in the United States and is expanding its footprint through a recent collaboration with telecom company Verizon. However, its U.S. operations contribute only about 9% to its total profits for 2024.
On the other hand, UBS heavily relies on the U.S. market, particularly within its lucrative global wealth management division, with approximately half of its invested assets in the Americas last year, as indicated in its annual report.
UBS faces a clouded outlook due to uncertainties regarding potential new capital requirements imposed by Swiss regulators, following its acquisition of the collapsed Credit Suisse, which significantly increased its U.S. presence. The bank anticipates further clarification on these regulatory guidelines next month.
Additionally, UBS’s profitability may be influenced by a strong Swiss franc, which has risen about 8% against the U.S. dollar since the recent tariff imposition, traditionally regarded as a safe-haven currency during financial instability.
This surge in the Swiss currency has been flagged by local trade groups as detrimental to exports, a concern even prior to the tariffs. Coupled with low inflation in Switzerland, this may prompt the Swiss National Bank to enact further interest rate cuts—rates had already been reduced to 0.25% in March.
In contrast, the European Central Bank is expected to lower its key deposit facility rate by a quarter point when it convenes later on Thursday, adjusting it to 2.25%. This anticipated reduction follows the ECB’s statement in March indicating that its monetary policy was becoming “meaningfully less restrictive,” a signal some analysts view as caution against further rate cuts.
Lower national interest rates generally put pressure on the net interest income generated from loans for local banks.
