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DealBook: Barclays and Credit Suisse Post Strong Earnings in Investment Banks

April 25, 2013 by Leave a Comment

Barclays' investment bank benefited partly from a bullish stock market performance in America.Darren Staples/ReutersBarclays’ investment bank benefited partly from a bullish stock market performance in America.

LONDON — As European policy makers push financial institutions to cut back on their risky trading activity, some of the region’s largest banks are becoming more reliant on their investment banking operations to bolster performance.

On Wednesday, the British bank Barclays and a Swiss rival, Credit Suisse, both reported strong first-quarter earnings for their investment banks that helped to offset some sluggish growth in other divisions like retail banking and wealth management.

The healthy performance comes despite a push by European politicians to limit firms’ exposure to financial risks and to promote lending to local economies.

New tougher capital requirements have forced European banks to shed billions of dollars of assets since the financial crisis began. A proposed cap on banker bonuses that will become effective at European institutions next year has led to fears of a mass exodus of firms’ top earners to international competitors.

The two banks’ first-quarter earnings reflected the strength of investment banking.

Barclays’ quarterly pretax profit for its investment bank rose 11 percent, to £1.3 billion, or $2 billion, or roughly 74 percent of the company’s combined pretax profit over the period.

Over all, Barclays’ quarterly profit, when adjusted for one-time charges, was £1.8 billion, down 25 percent from the same period last year, which missed analysts’ estimates. The fall was linked to £514 million ($784 million) of costs related to a restructuring that includes 3,800 layoffs and a £235 million ($359 million) charge connected to the value of the bank’s debt.

Barclays’ investment bank benefited from renewed deal activity and a bullish stock market performance in the United States, where it now generates around 50 percent of its revenue. For example, the bank is advising Dish Network on its proposed $25.5 billion takeover of Sprint Nextel. “The reality is that investment banking is becoming more dominant for Barclays,” said Ian Gordon, a banking analyst at Investec in London. “The first quarter was a blowout performance.”

At Credit Suisse, pretax profit in its investment banking division rose 43 percent, to 1.3 billion Swiss francs, or $1.4 billion, partly driven by a strong performance in the bank’s fixed-income sales and trading business. In contrast, earnings from the company’s private banking and wealth management business fell 7 percent, to 881 million francs, over the same period.

Credit Suisse reported a net profit of 1.3 billion francs ($1.4 billion) in the first quarter, compared with a profit of 44 million francs ($47 million) in the same period last year, when the bank booked a loss of 1.6 billion francs ($1.7 billion) on the value of its own outstanding debt.

Analysts said the bank’s strong earnings were a result of a cost-cutting program started by the chief executive, Brady W. Dougan. The company’s investment banking division also benefited from a pickup in global stock markets in the first three months of the year.

“The investment bank was the main driver with impressive cost management,” Kian Abouhossein, a banking analyst at JPMorgan Chase in London, said in a research note to investors.

Shares in Barclays fell 1.3 percent in London on Wednesday, while Credit Suisse’s stock price rose 1.5 percent in Zurich.

Attention will now turn to other large European banks that will report their first-quarter earnings over the next few weeks.

Deutsche Bank, the largest bank in Germany and one with a major investment banking division, will announce its results on Tuesday, as will the Swiss banking giant UBS. Analysts are expecting a fall in UBS’s first-quarter net profit as the company continues to carry out sharp reduction in its investment bank, which includes around 10,000 job cuts, to focus on its wealth management business.

The continued reliance on investment banking at some of Europe’s largest institutions follows efforts by politicians and top banking executives to reshape the Continent’s financial sector.

Some banks, like UBS and Royal Bank of Scotland, are reducing their exposure to risky trading assets, while others, like HSBC and Standard Chartered, are increasing their operations in fast-growing emerging markets.

Antony P. Jenkins, Barclays’ chief executive, also is trying to rehabilitate the company’s image after a series of recent scandals. Last year, the bank agreed to a $450 million settlement with the United States and British authorities after some of its traders were found to have manipulated crucial global benchmark rates for financial gains.

Article source: http://dealbook.nytimes.com/2013/04/24/barclays-and-credit-suisse-post-strong-earnings-in-investment-banks/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: HSBC to Cut 1,150 Additional Jobs in Britain

April 23, 2013 by Leave a Comment

An HSBC bank in London.Facundo Arrizabalaga/European Pressphoto AgencyAn HSBC bank in London.

LONDON — HSBC said Tuesday that it planned to cut about 1,150 jobs in Britain as the bank adjusts to new regulations for wealth advisers.

HSBC said it would eliminate 3,166 positions but create 2,017 jobs, mainly in its wealth management and advice business, after new rules took effect requiring advisers to hold additional qualifications. The job cuts are separate from a cost-cutting plan that HSBC announced in 2011, when it said it would reduce about 30,000 positions over the next three years.

“The changes reflect the changing nature of customer behavior and regulation,” HSBC said in a statement.

The new rules, which came into place in Britain at the beginning of the year, mean that financial advisers must have to be more transparent about how much their advice costs and how customers would pay for it. Previously, advisers often received commissions from the providers of certain products, such as pension plans or insurance.

HSBC is among a handful of British banks that had to set aside money to compensate some clients because the banks wrongly sold them an insurance product. The so-called payment protection insurance scandal shed additional light on the need to change the rules for financial advisers, who were under pressure to sell products.

Ian Gordon, an analyst at Investec, said other British banks might be considering similar steps because of changing regulation but that the job cuts are also an attempt to reduce costs further. “Ongoing revenue pressures are refocusing efforts on cost reduction,” he said.

Stuart T. Gulliver, who took over as HSBC’s chief executive in 2011, has embarked on a wide-ranging plan that he said would bring down costs by as much as $3.5 billion and improve profitability. The bank closed businesses as it exited some markets, for example retail banking in Russia.

In December, HSBC agreed to sell its stake in China’s Ping An Insurance to a Thai conglomerate for $9.4 billion. It sold its credit card unit in the United States to Capital One Financial for $2.6 billion and its unit in Panama to Bancolombia for $2.1 billion.

Despite the cost-cutting, some analysts are skeptical that HSBC would reach its 12 percent return-on-equity target, a measure of profitability, in the medium term. The company is to update investors on its strategy next month.

Tuesday’s announcement prompted Dominic Hook, national officer of Unite, Britain’s largest workers’ union, to say his organization might ask HSBC staff members whether they want to take part in a strike ballot. “HSBC is making staff suffer in the search for ever greater profits,” Mr. Hook said in a statement on Unite’s Web site. “The bank’s behavior is a disgrace. After making proposals to slash pensions, holidays and sick pay the bank is now slashing even more jobs.”

Bank officials say the changes were necessary to meet new regulatory rules.

“I understand change is always unsettling, particularly for those directly affected,” Brian Robertson, chief executive of HSBC Bank in Britain, said. “However, I also firmly believe what we are proposing is essential in order for us to fulfill our customers’ expectations.”

Article source: http://dealbook.nytimes.com/2013/04/23/hsbc-to-cut-1100-additional-jobs-in-britain/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: British Proposal to Rein In Banks Is Faulted

March 11, 2013 by Leave a Comment

Prime Minister David Cameron sought to rein in pay at the bank.Pool photo by Stefan RousseauPrime Minister David Cameron.

8:07 a.m. | Updated

Proposed legislation to protect Britain’s financial services sector from future crises does not go far enough and may fail to stop banks from engaging in risky trading, British lawmakers warned in a report on Monday.

The warning comes as Parliament debates the new laws, which outline how firms could be split up if they do not separate their investment banking units from their retail banking operations.

The creation of a so-called ring fence between the banks’ businesses is an attempt to shield consumers from an implosion of trading activity and other risky behavior that led to several big banks being bailed out by British taxpayers during the financial crisis.

In the wake of the multibillion-pound handouts to British banks and a series of scandals like the manipulation of benchmark interest rates that have rocked London’s position as a global financial center, Prime Minster David Cameron created a parliamentary commission last year to review standards in the British banking industry.

In the report published on Monday, British politicians said the government had failed to adopt several proposals from the commission intended to protect local firms.

The recommendations include a regular independent review to check that banks are maintaining a separation between their risky trading activity and retail deposits.

The commission also suggested that firms’ overall leverage ratio, which measures the amount of risk banks undertake, should be higher than current international standards, and that local regulators should have greater powers to separate firms if they fail to maintain a division between the different business units.

“The government rejected a number of important recommendations,” Andrew Tyrie, a Conservative Party politician who is chairman of the parliamentary commission on banking standards, said in a statement. “There remains much more work to be done to improve the bill.”

George Osborne, Britain's chancellor of the Exchequer.Vincent Kessler/ReutersGeorge Osborne, Britain’s chancellor of the Exchequer.

The report is the second time that the commission has officially weighed in on the British government’s attempts to improve how banks are regulated.

Last year, local politicians also demanded that British authorities should have the explicit power to split up banks completely.

In response to the proposal, George Osborne, the chancellor of the Exchequer, agreed last month to allow British regulators to forcibly separate firms that did not maintain a clear division between their retail and investment banking units.

As part of its lengthy investigation into British banking standards, local lawmakers have called many senior executives, including the chief executives of Britain’s major financial institutions, to give evidence.

In often tense testimony, bankers have been questioned about wrongdoing connected with the investigation into the manipulation of global benchmark rates like the London interbank offered rate, or Libor.

The Royal Bank of Scotland and Barclays already have agreed to large fines with American and British regulators over their roles in the scandal. Other British firms and international banks like Citigroup remain under investigation.

As part of efforts to revamp the country’s banking industry, British politicians are pushing through legislation that is aimed at protecting local consumers from potential future financial crises.

The new laws, according to the British parliamentary commission report published on Monday, “represent not the beginning of the end for the necessary reform process, but the end of the beginning.”

Article source: http://dealbook.nytimes.com/2013/03/10/british-proposal-to-rein-in-banks-is-faulted/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: British Commission Says Bank Reforms Don’t Go Far Enough

December 21, 2012 by Leave a Comment

George Osborne, Britain's chancellor of the Exchequer.Pool photo by Chris RatcliffeGeorge Osborne, Britain’s chancellor of the Exchequer.

LONDON — Regulators in Britain should have the power to completely split up banks, a government-commissioned report concluded Friday, adding that changes being currently proposed do not go far enough to prevent a future crisis.

Plans to tighten banking regulation, which are expected to go before Parliament early next year, “fall well short of what is required,” the report said.

After the rate-rigging scandal that erupted this summer, Britain’s chancellor of the Exchequer, George Osborne, asked a parliamentary commission to take a closer look at the planned banking regulation overhaul. While Mr. Osborne had previously backed the plan, the commission found the proposals lacking.

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“Banks need to be discouraged from gaming the rules,” the report said. “All history tells us they will do this unless incentivized not to.”

Now, Mr. Osborne has to decide whether to follow the recommendations of the Independent Commission on Banking and further strengthen the rules or bow to pressure from the banking sector, which argued that any strict rules would harm its competitiveness. Under the current proposals, banks would have to protect, or ring-fence, their retail banking operations from possible losses at their investment banking units.

But the commission said on Friday that the rate-manipulation investigation, which has ensnared more than a dozen big banks around the globe, highlighted the need for even stricter rules. “The latest revelations of collusion, corruption and market-rigging,” the commission wrote in the report, are “the clearest illustration yet that a great deal more needs to be done to restore standards in banking.”

The commission recommended “electrification” of such a ring-fence, meaning there needed to be periodic reviews that the partition remained in place and realistic threats to keep banks from trying to bend the rules.

“Over time, the ring-fence will be tested and challenged by the banks,” the commission said in the report. “Politicians too, could succumb to lobbying from banks and others, adding to pressure to put holes in the ring-fence.”

Authorities in the United States and Europe are putting the finishing touches on a new set of banking regulations intended to avoid a repeat of the financial crisis that started in 2007.

In the United States, the Volcker Rule, a part of the Dodd-Frank act that would prohibit banks from making risky bets with their money, is nearing approval by regulators. In France, the finance minister, Pierre Moscovici, introduced a banking bill similar to one planned by Mr. Osborne.

But in some cases, the details remain murky. While latest recommendations by the British lawmakers might not fundamentally change the requirements for banks, they do add to the regulatory uncertainty for banks, which the industry contends makes it difficult to shape strategy.

“It’s suffocating,” Ian Gordon, an analyst at Investec, said. “There is constant speculation and change, and the number of resources banks have to make available is becoming more than a distraction.”

Anthony Browne, the chief executive of the British Bankers’ Association, an industry lobby group, warned that such uncertainty could threaten London’s position as a global financial center. “While it is clearly important to retain a degree of flexibility around the scope of the ring-fence, it is equally critical that any new system creates regulatory certainty for banks and their investors,” he said.

Article source: http://dealbook.nytimes.com/2012/12/21/after-rate-rigging-scandal-british-lawmakers-call-for-tougher-bank-rules/?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

DealBook: Despite a Spurt of Banking Deals, Pace Ahead Looks Slow

June 23, 2011 by Leave a Comment

Judging by the last week, one could be forgiven for thinking that banking deals were back in vogue. Last Thursday, Capital One Financial announced that it was buying the American online banking business of the ING Group for $9 billion. Four days later, PNC Financial said that it would pay $3.45 billion for the Royal Bank of Canada’s retail banking network.

And on Wednesday, Regions Financial disclosed that it was exploring a potential sale of its Morgan Keegan brokerage firm.

But that spate of deal announcements doesn’t herald a coming surge in bank transactions anytime soon, according to merger specialists and analysts.

The pace of mergers is instead expected to remain slow as long as questions like the shape of financial regulation and the value of home mortgages hover over financial institutions.

“Until there are signs of a robust M. A. market, many sellers are going to choose to wait,” said Lee A. Meyerson, a partner at the law firm Simpson Thacher Bartlett and the head of the firm’s mergers and financial institutions practices.

Shortly after the financial crisis, many experts had forecast an upswing in deals as failing banks were matched up with rescuers and smaller institutions sought to gain much-needed scale.

Even now, banks face considerable pressure on their profitability. Fewer businesses are seeking loans, reducing the prices that banks can charge. The Dodd-Frank overhaul, which includes the so-called Durbin amendment that would cut debit card transaction fees, also threaten to cut into revenue.

Larger institutions, including SunTrust Banks and Regions, are also likely to face higher capital requirements that could constrain their lending.

Those factors make consolidation more attractive, as institutions look for ways to gain scale and squeeze out cost savings by combining back-office systems and cross-selling products.

While regulators have long been concerned about limiting the number of “too big to fail” institutions, some dealmakers say, the opposite problem of “too small to succeed” will continue to drive today’s bank mergers.

Yet the number of bank mergers in the country remains well below its peak in late 2008 and early 2009, with just 123 mergers announced this year through Wednesday, according to data from Thomson Reuters. By contrast, 277 deals were announced during the same time in 2009.

The number of bank transactions assisted by the Federal Deposit Insurance Corporation has slowed in recent months as well, as it has seized fewer failing institutions.

Few merger specialists expect the sort of transformative mergers that previously defined banking consolidation, like the union of Bank of America and NationsBank or even the fire sales of Wachovia and Washington Mutual.

“Near term, the days of blockbuster, mega-bank deals appear to be over,” said J. Kenneth McPhail, a managing director in Bank of America Merrill Lynch’s financial institutions group.

Many of the deals struck recently were asset sales, including the ING and R.B.C. transactions, rather than wholesale takeovers. ING said this week that it planned to continue selling other businesses, like its car lease unit, as part of the terms of its bailout by the Dutch government.

HSBC Holdings is also pursuing a sale of its 175 upstate New York branches.

And Citigroup has sold several assets as part of its revamping, including its student loan business. Its consumer finance unit, CitiFinancial, remains on the auction block.

Unlike in years past, the nation’s four-biggest banks are unlikely to pursue big acquisitions this year. Most of them are bumping up against a regulatory cap on owning more than 10 percent of the nation’s deposits.

That has left the next tier of institutions as among the most likely bidders for sizable deals that may arise. Other than PNC and Capital One, US Bancorp, which is well known for its merger appetite, and BBT and MT Bank as possible buyers. MT has already notched a sizable deal, agreeing to buy Wilmington Trust late last year for about $351 million.

In its latest weekly tally of potential bank deals, Keefe Bruyette Woods listed 22 institutions that could be sellers. The list included Marshall Ilsley, which agreed earlier this year to sell itself to Canada’s BMO Financial Group for $4.1 billion.

“There are a number of sellers who need to assess the new economic, regulatory, and competitive realities of the industry,” John Simmons, the co-head of JPMorgan Chase’s financial institutions group for North America, said.

Article source: http://feeds.nytimes.com/click.phdo?i=6593b1b8ac9c2f394abde097e0f08ac9

Filed Under: Business News Tagged With: , ,

DealBook: Wells Fargo Profit Jumps, but Revenue Falls Slightly

April 21, 2011 by Leave a Comment

Noah Berger/Bloomberg News

8:20 p.m. | Updated

Wells Fargo Company posted a 48 percent increase in first-quarter profit on Wednesday, but investors were not impressed by the results, given fears that sluggish mortgage loan growth would erode the bank’s earnings power.

Shares of the bank, which is based in San Francisco, fell 4.1 percent as traders looked past bottom-line earnings of $3.8 billion and focused on slow top-line growth.

Revenue fell 5.2 percent to $20.3 billion as rising interest rates caused the mortgage refinancing boom to slow down.

The bank, which is the nation’s biggest mortgage underwriter, said that home loan origination volume fell by more than 34 percent from the fourth quarter.

Nonetheless, Wells Fargo beat analysts’ estimates by a penny and recorded a record profit with the help of some sophisticated financial management.

The bank reduced the amount it set aside to cover future loan losses by about $3 billion from a year ago even as its pile of bad loans decreased.

The reserve reduction strategy has been a favorite of the major banks this quarter, as they have all taken advantage of the improved economy to lower loan-loss provisions. That leaves more money to be counted as profit, although it can camouflage underlying weakness.

Other giant banks with big Wall Street businesses were able to make up for some of the missing income with stronger results from investment banking and trading. But Wells Fargo, which is more oriented to retail banking, could not.

However, Timothy J. Sloan, Wells Fargo’s newly installed chief financial officer, brushed aside concerns that Wells Fargo would be severely hurt by a fall-off in its mortgage business.

“If rates go up, it is probably because the economy is going to grow,” he said in an interview. “And if the economy is growing, it’s more likely the rest of our businesses will grow.” With an improved economy, he said, he foresees a pickup in its wealth management and small business lending operations, as well as finding new profits by deploying more than $100 billion of cash it has on hand.

Investors were not convinced. Wells Fargo’s stock fell $1.24, to $28.83 a share, while shares of its rivals, Bank of America, Citigroup, and JPMorgan Chase, were flat.

Along with the slowdown in mortgage lending, Wells Fargo faces rising operating costs for servicing loans that are headed into foreclosure, especially after reaching a deal with federal regulators this month to increase staff levels and improve oversight.

Wells Fargo said it took a quarterly charge of about $214 million on its mortgage servicing business after factoring in the higher operating expenses.

The bank has strengthened internal processes and hired 1,000 staff members after adding several thousand last year.

Wells also said it was setting aside an additional $472 million to cover other foreclosure expenses, like fines and litigation costs. That is up from about $193 million in the fourth quarter.

Like the other big banks, Wells Fargo may be required to buy back bad loans it sold to Fannie Mae, Freddie Mac and other private investors.

In the first quarter, the bank set aside $249 million to cover future repurchases, after setting aside $464 million in the fourth quarter.

Still, the spill of red ink has slowed. Although the housing market and broader economy remain fragile, Wells Fargo said it had released $1 billion from its loan loss reserves in the first three months of the year and expected to continue drawing down its reserves in the coming quarters.

“We wanted to see more sustained performance in the improvement of the portfolio,” Mr. Sloan said. “We have seen that trend continue.”

Article source: http://feeds.nytimes.com/click.phdo?i=55a81aaab66c4659ac6965e5eb79b4e2

Filed Under: Business News Tagged With: , ,