World week ahead: “Cockroaches” crawling to Europe?

European banks take center stage this week as earnings season kicks off, but with heavy sector losses on Friday, credit concerns appear to be making their way across the Atlantic at a particularly difficult time for the region’s lenders.

Last week, the biggest names in US finance battled to make the most alarming quote of the week. The contenders: JPMorgan CEO Jamie Dimon, Citi Group CEO Jane Fraser and Apollo chief Mark Rowan.

Dimon started the week with a rude warning about the private loan market, saying that “when you see one cockroach, there are likely to be more.”

Fraser was next, warning of “pockets of foam in the valuation”. Although Rowan was more forthright, suggesting that “there was a willingness to cut corners,” in a recent an appearance in the Financial Times.

With sirens wailing in the States, what does this mean for Europe and how will continental bankers voice their concerns as earnings season gets under way in earnest next week?

European earnings season begins

Unicredit, Barclays, Lloyds Banking Group and Natwest will lead reporting of financial names in Europe and the UK

Federated Hermes’ head of credit finance, Filippo Aloati, told CNBC that he expects CEOs to “shift their focus from macro to micro risk” as a focus in their earnings calls this week, amid concerns around private credit markets. Meanwhile, Morningstar’s Johan Scholz told CNBC that while he doesn’t see a material deterioration in credit quality in the third-quarter results, “it will be interesting to see how forthright management teams are when discussing future developments in credit quality.”

Scholz highlighted concerns about corporate and small-to-medium-sized loan portfolios, saying “the market is underestimating the impact that (trade) tariffs could have on certain parts of European banks’ loan portfolios.”

On Friday, bank stocks sold out sharply across Europe as credit concerns led to big declines for people like Deutsche Bank, Societe General, UBS and his colleagues across the sector.

Margin of error

CNBC’s Silvia Amaro will talk to Unicredit CEO Andrea Orsell as the bank releases its latest earnings, with S&P Global forecasting a weak third quarter amid narrowing net interest margins and higher funding costs.

The Italian lender is continuing its M&A ambitions, increasing its stake in Greece’s Alpha Bank to 26%, with Orsel saying “we are grateful to the Greek government, the central bank and other Greek institutions for welcoming us and encouraging our investment.” Reception of Unicredit’s expansion plans in Germany remains cooler.

Car problem

British lender Lloyds Bank will also report next week, having just announced a further £1.95bn hit to its balance sheet following a regulatory ruling over the mis-selling of car finance loans. The Financial Conduct Authority estimates the scandal will cost UK lenders up to £11bn. IG predicted that this charge would offset what would have been a strong quarter for the bank as, unlike some of its European rivals, net interest income continued to grow.