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

wbt1uutqivyeizise35){}3a_media_dl_1.png Societe Generale quarterly repor

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(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.

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Societe 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.

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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. 

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“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.”

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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.

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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.

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“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.”

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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.

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European lenders are signaling they’re willing to get more involved, with a preference for funding established players.

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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.

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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.