September 28, 2020

DealBook: From Spain to Britain, Bank Earnings Slip in Europe

Three of the four major European banks that reported first-quarter earnings on Thursday performed weaker than had been expected as a result of recent market turmoil and the slow economic recovery in countries including Britain and Spain.

Lloyds Banking Group, the partially nationalized British bank, posted a net loss of £2.43 billion ($4 billion) for the period, the result of a £3.2 billion charge for potential compensation related to a court case involving insurance policies sold to bank customers. During the period a year earlier, Lloyds had posted a profit of £204 million.

Lloyds also blamed “continued economic and regulatory uncertainty” and said “sentiment and economic performance is being affected by concerns over austerity measures and cost inflation, and by global factors including instability in the Middle East and North Africa, and natural disasters such as in Japan and New Zealand.”

The bank said it had been focusing on further reducing its risky assets, and that it had delivered a “satisfactory trading performance” given the backdrop. Its core Tier 1 ratio, a measure of financial strength, stood at 10 percent, down from 10.2 percent in the fourth quarter.

The provision follows a British court decision last month that barred lenders from appealing a decision requiring them to compensate consumers for selling unnecessary loan insurance policies, which typically cover sickness or unemployment, and being told it was compulsory when it was not. Customers also were regularly not told the full details of the policies.

Other British banks like Barclays and Royal Bank of Scotland are also expected to make related payments, and the Financial Services Authority has estimated total claims at £4.5 billion.

At Lloyds, provisions related to the Irish economy, which is being supported by the International Monetary Fund and Dublin’s European partners, also contributed to the loss.

“Lloyds has not traditionally been able to benefit from the international diversification of some of its rivals and where it has, such as in Ireland, it has been forced to make further write-downs,” said Richard J. Hunter, head of British equities at Hargreaves Lansdown in London.

The British government holds 41 percent of Lloyds, acquired during the financial crisis. It also retains 84 percent of R.B.S. The government is not expected to sell any of its stakes until September at the earliest.

The scale of the provisions was unexpected and sent the company’s share price down 8.5 percent, to 53.09 pence. Other London-listed banks also suffered.

BBVA

One of the largest Spanish banks, BBVA, said its first-quarter net income dropped 7.3 percent, to 1.15 billion euros ($1.7 billion) as a weak business climate in Spain offset improvements in Mexico. Despite the profit decline, the lender said the first-quarter performance was its best in the last three quarters.

“The resilience of our earnings is based on an adequate diversification and on a successful business model,” said Ángel Cano, BBVA’s president and chief operating office. “Emerging markets will continue to play a growing role in the group’s earnings.”

The bank said bad loans, as a proportion of the bank’s overall lending, had dipped to 4.1 from 4.3 percent in the period a year earlier, adding that it was the fifth quarter in a row in which the nonperforming assets ratio remained in check.

An aggregate index of Spanish real estate prices, compiled by Barclays Capital, showed home prices down 0.8 percent in April from a month earlier, and 4.7 percent lower from the period a year earlier. That represented the sharpest pace of annual decrease since March 2010.

“We expect a further decline of potentially around 20 percent from here,” the Barclays analysts Julian Callow and Antonio Garcia Pascual said.

Société Générale

Société Générale, one of the largest banks in France, said its net profit for the quarter was 916 million euros, down almost 14 percent from the period a year earlier. It booked a charge of 239 million euros on its own debt and saw business disrupted with the political turmoil in the Arab world.

Own-debt charges have been common this earnings season as banks, which marked down their liabilities as their debt declined in value during the crisis, have had to mark that debt back up as their creditworthiness recovers.

The bank said net income at its international operations had fallen 61 percent, to 44 million euros, as performance was affected by “the economic consequences of the political transition situations experienced in Egypt, Tunisia” and Ivory Coast.

Independent of the protests that swept North Africa this year, Ivory Coast was riven by civil strife between the forces of former President Laurent Gbagbo, now ousted, and a newly elected government. Société Générale and other international banks closed their operations in the country in February.

Shares in BNP Paribas, another large French bank, rose 1.1 percent in Paris. On Wednesday it said its first-quarter net income rose to 2.62 billion euros, beating the estimate of analysts.

ING

ING, the Dutch financial services company bailed out during the crisis, was the one bright spot in the earnings reported on Thursday, posting profit of 1.38 billion euros for the quarter, up 12.3 percent from the period a year earlier.

The bank said it had drawn more deposits, lowered risk provisions, cut costs and kept a “healthy interest margin.” Its insurance benefited from higher fees, more sales and returns on its investments, it said.

The bank reiterated its intention to repay 2 billion euros of state aid next week, a transaction that will cost it 3 billion euros because of a 50 percent repurchase premium. ING is also preparing to split its banking and insurance businesses, which was a condition of receiving the government bailout.

“The restructuring of the group is on track,” Jan Hommen, chief executive of the bank, said in the statement. “We are laying the groundwork this year for two I.P.O.’s of our U.S. and European and Asian insurance businesses.”

Article source: http://dealbook.nytimes.com/2011/05/05/from-spain-to-u-k-bank-earnings-slip-in-europe/?partner=rss&emc=rss

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