FRANKFURT — As European officials struggle to find a solution to the sovereign debt crisis, two of the region’s largest financial firms continue to deal with the fallout from the market turmoil.
On Tuesday, Deutsche Bank exceeded quarterly profit expectations, but Germany’s largest lender warned of jobs cuts in the investment bank, following a drop in trading revenue stemming from the market mess. Under similar pressure, the Swiss bank UBS, which also was hurt by a trading scandal that cost it $2.3 billion, reported that earnings fell 39 percent in the third quarter, from a year earlier.
Profits at banks around the world have plunged, particularly in investment banking. Fearing that another financial crisis is brewing, regulators and shareholders are pushing financial firms to temper risk — all of which is weighing on operations.
Deutsche Bank reported profit of 777 million euros, or $1.1 billion, in the three months ended Sept. 30, compared with a loss of 1.2 billion euros a year earlier. But pretax profit in the corporate banking and securities division, which includes the investment bank, plunged to 70 million euros in the quarter from 1.1 billion euros a year earlier. Owing to the poor performance, Stefan Krause, the bank’s chief financial officer, said further job cuts were possible, on top of the 10 percent reduction already under way.
Josef Ackermann, the chief executive of Deutsche Bank, said the climate for banking was “more difficult than at any time since the end of 2008” because of a deteriorating economy and financial market turbulence. “Our performance was, inevitably, impacted by this environment,” Mr. Ackermann said in a statement.
At UBS, profit fell to 1.02 billion Swiss francs, or $1.15 billion, in the three months ended Sept. 30, from 1.66 billion francs in the period a year earlier. The pretax loss at the investment banking unit widened to 650 million francs from 406 million francs because of the trading loss, while earnings at the wealth management unit rose.
Sergio P. Ermotti — the interim chief executive who took over after the resignation of Oswald J. Grübel in the wake of trading scandal — is now scaling back the struggling investment banking operation, to free up capital to invest in wealth management. UBS is expected to present its new strategy for the unit to investors in New York on Nov. 17.
“Current market conditions and trading activity are unlikely to improve materially, potentially creating headwinds for growth in revenues and net new money,” UBS wrote in a letter to shareholders. But it added that a plan to reduce costs and scale back its investment banking operation meant “we have every reason to remain confident about our future.”
The sovereign crisis may have additional short-term implications for Deutsche Bank. Political leaders are pushing banks under their purview to increase their reserves so they can withstand a default by Greece on its government bonds, a possibility that seems increasingly likely.
Deutsche Bank, which reported a loss of 185 million euros related to holdings of Greek bonds in the quarter, is among institutions that may need to raise more capital.
European regulators are expected to push banks to raise their Tier 1 equity ratio, a measure of reserves on hand, to 9 percent by June at the latest. While Deutsche Bank exceeds that standard now, regulators will probably impose tougher criteria that take into account possible damage caused by the sovereign debt crisis or a slumping economy. In that case, Deutsche Bank’s reserves might sink below the minimum.
Mr. Krause said the bank would be able to increase its capital without resorting to government aid, by retaining future profits rather than paying them out to shareholders, for example.
Julia Werdigier reported from London.
Article source: http://feeds.nytimes.com/click.phdo?i=d938453420dc182f593ac191a08faf58
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