European Banks Want a Slice of AI Profits, But Less of the Risk

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessEuropean Banks Want a Slice of AI Profits, But Less of the RiskEurope’s top banks want to earn more from the debt-fueled artificial intelligence boom, while seeking ways to limit and offset exposures to the red-hot sector.Author of the article:Nicholas Comfort and Esteban Duarte You can save this article by registering for free here. Or sign-in if you have an account.wbt1uutqivyeizise35){}3a_media_dl_1.png Societe Generale quarterly repor(Bloomberg) — Europe’s top banks want to earn more from the debt-fueled artificial intelligence boom, while seeking ways to limit and offset exposures to the red-hot sector.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountSociete Generale SA became one of the few European lenders on Thursday to detail its exposure to data center infrastructure, equivalent to about €7.7 billion ($8.8 billion). At the same time, the French lender is taking steps to spread such risks more broadly — by wrapping up a deal to hedge project financing including data centers worth over $5 billion, Bloomberg reported.BBVA SA and ING Groep NV are among other banks offloading risks on AI-linked lending via deals pooling a wider range of assets. SocGen’s Paris rival, BNP Paribas SA, said last week that it’s increasingly positioning its businesses to benefit from the “AI capex supercycle” — with caveats. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try again“We see a lot of demand, but we have to be careful,” BNP Paribas Chief Financial Officer Lars Machenil said in an interview with Bloomberg TV. “We’re ready to support it, but we keep our eyes open.”The AI revolution rests on massive spending by technology companies to buy chips and build data computing centers — with the top four US hyperscalers guiding that capex this year will be over $700 billion, according to Bank of America. Yet some watchdogs have already started to warn that uncertainty over sustaining massive AI investments is a key risk for global growth and financial markets.Wall Street banks have typically supported the AI build out through facilitating bond markets, rather than retaining large exposures on their own balance sheets, according to Bloomberg Intelligence. BI’s analysis shows they carry about 1%-1.5% of total loan exposure associated with data-center commercial real estate and AI-related software lending.“We’ve had a prominent role in some of the very large debt offerings that some of the US hyperscalers have made,” Barclays Plc Chief Executive Officer CS Venkatakrishnan told analysts on Wednesday. “We continue to advise many of them on — in an advisory way and on capital planning and expenditure.”He also said that Barclays is set to win business from ancillary industries, including power, grids and construction. “So, you should expect us to continue to play a prominent role there,” the CEO said.European lenders are signaling they’re willing to get more involved, with a preference for funding established players.SocGen said Thursday that about 70% of its exposure is related to hyperscalers, which are cloud computing companies including Amazon Web Services and Microsoft Azure. The bank’s move to hedge some of its infrastructure exposure through so-called significant risk transfers takes advantage of investor demand for the higher-yielding products.BNP Paribas is also assessing investor appetite for a significant risk transfer tied to a portfolio of data center loans, Bloomberg reported earlier this month. This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.It’s not just European lenders that are seeking to hedge their exposure. Lenders such as Toronto-Dominion Bank, Royal Bank of Canada have also weighed SRTs focused on finance tied to AI infrastructure.Banks use SRTs as a way to insure loan losses, typically obtaining protection for between 5% and 15% of the portfolio value, in order to free up capital for new business. Transferring risk to investors increases their ability to originate new loans, make acquisitions or increase shareholder payouts. SRT buyers stand to reap coupon payments that can exceed 10%.While Deutsche Bank AG hasn’t provided a breakdown of its exposure, finance chief Raja Akram said on Wednesday that “it’s high-single digits and it’s within our appetite.”“Our exposure is to large sponsors who have a diversified business model and a revenue stream,” Akram said. “We don’t generally tend to lend to small sponsors or companies whose only business is AI or only businesses is a certain type of technology. That makes us comfortable.”—With assistance from Claudia Cohen and Mark Thompson.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.