Europe's banks brace for tougher competition under Trump 2.0

European banks face an even tougher task to close an earnings gap on U.S. rivals, as Wall Street awaits a new era of financial deregulation under a second Donald Trump presidency.

Lenders in the euro zone and Britain have been hobbled by poor profitability and weak economies since the 2008-09 global financial crisis, while U.S. banks have soared in value and stolen market share, especially in investment banking as European rivals retreated.

Some banks had begun to claw back lost ground this year. Until this week, European shares were outperforming U.S. peers and hopes had grown that the U.S. would adopt some elements of the Basel III regulations requiring American banks to hold more capital, helping level the playing field.

Trump's presidential election win this week has turned the tables. JPMorgan, Goldman Sachs and Morgan Stanley shares all soared while the STOXX Europe 600 Banks index is down more than 1% for the week.

"The expectation is simple: deregulation and tax cuts in the U.S. contrast with Europe's strict oversight and low-interest-rate grind," said David Materazzi, CEO of Italy-based automated trading platform Galileo FX.

"If U.S. banks get the expected policy support, they could ramp up loan volumes and optimize capital in ways that Europe's banks just can't match right now," Materazzi said.

Since early 2010, European banking shares have fallen 10%, while U.S. lenders have more than tripled.

The European Central Bank has estimated that euro zone banks' return on equity fluctuates around 5%, against 10% in the U.S., linking it to higher U.S. fee income and legacy non-performing loans with which European banks still grapple.

There are already signs European politicians are bracing for a new landscape under Trump.

Swiss