Europe’s top banks feel pain from debt crisis

Agence France-Presse
Europe's biggest banks on Tuesday took massive hits on their second-quarter profits as the eurozone debt crisis sliced into earnings and added to pressure to boost their capital defences

FRANKFURT, Germany – Europe’s biggest banks on Tuesday took massive hits on their second-quarter profits as the eurozone debt crisis sliced into earnings and added to pressure to boost their capital defences.

In Germany, the biggest lender Deutsche Bank said it would axe 1,900 jobs as the crisis slashed its bottom-line profit nearly in half in the period from April to June.

In neighbouring Switzerland, giant UBS blamed a 58-percent slump in second-quarter net profit on lower trading and services revenues while operating costs rose.

In Spain, the country’s second biggest bank, BBVA, said its earnings slumped due to a drastic rise in provisions, ordered by the government to cover its exposure to the beleaguered real-estate market.

And in Austria, the number one lender Erste Bank, a specialist in Eastern Europe, saw its second-quarter net profit tumble 46 percent owing to problems in Hungary and Romania.

Banks earn a big chunk of their profits from operations on financial markets where they have not only sustained losses from falling asset prices, but are also feeling the pain from a downturn in investor activity, said Deutsche Bank’s new co-chief executives Anshu Jain and Juergen Fitschen.

“The European sovereign debt crisis continues to weigh on investor confidence and client activity across the bank,” the two said.

Deutsche’s net profit in the April-June period fell to 661 million euros ($811 million) from 1.2 billion euros a year earlier. Revenues were down 6.0 percent at 8.0 billion euros.

In view of the current difficult environment, Deutsche Bank decided to “reduce headcount predominantly outside of Germany by approximately 1,900 positions,” of which 1,500 would be axed in its corporate banking and securities division.

These measures were expected to contribute savings of approximately 350 million euros of an overall cost-cutting target of 3.0 billion euros, the bank said.

There has been concern, in face of the drop in profits, whether Deutsche Bank can meet the EU’s more stringent capital requirements without issuing new shares to raise additional funds.

But the group insisted that its core Tier 1 capital ratio — a key measure of financial health — stood at 10.2 percent at the end of the second quarter, up from 10 percent three months earlier and above the 9.0-percent minimum required by regulators.

In Zurich, UBS chief executive Sergio Ermotti said his group was determined to “consolidate its position as the best capitalised bank,” topping the 9.0 percent Core Tier 1 capital ratio requirement by the end of this year.

Banking regulators have tightened capital ratio requirements in an effort to prevent any repeat of the risky practices which contributed to the 2008 global financial crisis.

In Madrid, BBVA’s net profit slumped 57.5 percent to 505 million euros in the three months to June, much worse than analysts’ already pessimistic forecasts.

Spain has ordered its banks to clean up their balance sheets once and for all to ease market pressure that has also driven up the government’s cost of borrowing to a level near where other eurozone countries were forced to seek international aid.

The total amount of new provisions expected to be taken by Spanish banks has been estimated at more than 80 billion euros and BBVA said it had set aside 1.43 billion euros in provisions, about a third of the 4.64 billion euros which the bank needs to meet the government’s new regulations.

The Spanish government, faced with preventing a potential string of bank insolvencies, has requested an up to 100-billion-euro rescue for its financial sector from eurozone partners.

In Vienna, Erste Bank said its net profit fell 13 percent from a year earlier to 453.6 million euros after it took a provision of some 200 million euros on its Romanian business.

Separately, Deutsche Bank’s supervisory board chief Paul Achleitner also confirmed for the first time that an internal investigation has been launched into the Libor affair.

“As per the current status of investigations, we can say that no current or former member of the management board had any inappropriate involvement,” Achleitner wrote in a letter to staff, a copy of which was obtained by AFP.

“It has also found that a limited number of employees, acting on their own initiative, engaged in conduct that falls short of the bank’s standards, and action has been taken accordingly.” -Agence France-Presse