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DealBook: European Banks Show Signs of Health

April 30, 2013 by Leave a Comment

UBS on Tuesday reported first-quarter earnings that were much stronger than predicted.Arnd Wiegmann/ReutersUBS reported first-quarter earnings on Tuesday that were much stronger than predicted.

11:33 a.m. | Updated
Despite persistent unemployment, malaise and continuing debt problems, one sector in Europe seems to be benefiting: European banks.

After years of painful job cuts and moves to make portfolios less risky, several large European institutions reported strong first-quarter results in recent days, helped by cost-cutting and better performance of major units.

On Tuesday, the Swiss bank UBS and the Lloyds Banking Group of Britain surprised investors by reporting better than expected earnings for the first quarter, sending their shares up.

European lenders certainly continue to confront broad economic challenges like the burden of euro zone debt and pressure from regulators to strengthen their capital reserves. But there have been signs that some of the bigger banks are returning to health.

UBS reported a first-quarter profit of 988 million Swiss francs ($1 billion). Those results were down slightly from 1 billion francs in the period a year earlier, but far exceeded the 412 million francs predicted by analysts surveyed by Bloomberg News.

Sergio P. Ermotti, the chief executive, said in a statement that he was very pleased with the performance. He cautioned that it was “too early to declare victory,” but said the earnings showed the company’s “business model works in practice.”

The British banks Royal Bank of Scotland and HSBC, along with the French bank BNP Paribas, are among those still scheduled to report first-quarter figures in the coming days. But so far, the first-quarter results paint a somewhat encouraging picture of banks that have managed to limit losses from bad loans linked to the credit crisis, while reducing costs and returning to their core banking operations: credit and mortgages for some and wealth management for others.

Some investors caution that the continuing difficulties in the euro zone and weak demand for loans mean that many European banks remain in trouble despite relatively good earnings in the first quarter.

“They are doing their utmost to have a decent banking model and the numbers across the board were very good, but going forward we now have the issue of where the growth is going to come from,” said Florian Esterer, a fund manager at the MainFirst Group in Zurich.

Still, European banks are moving actively to address their problems, including by sharply cutting costs in the face of changing regulations and a sluggish European economy. Deutsche Bank, which reported earnings on Monday, said first-quarter profit rose as cost-cutting offset a decline in revenue from investment banking. Deutsche Bank’s stock also rose rose 4.7 percent in Frankfurt on Tuesday afternoon on the news that it would issue new shares to bolster its capital reserves.

UBS, meanwhile, has been eliminating 10,000 jobs, reducing bonus payments, scaling back its investment banking trading business and focusing more on its successful wealth management operation. Those steps helped the bank’s first-quarter results.

Net new money at its global wealth management business was 23.6 billion francs in the first quarter, compared with 10.9 billion francs in the period a year earlier. Pretax profit at wealth management outside the Americas fell 28 percent, to 664 million francs, while earnings at wealth management in the Americas rose 19 percent, to 251 million francs.

UBS also joined other banks, including its Swiss rival Credit Suisse and Barclays of Britain, in benefiting from higher revenue at its investment banking operation. At Credit Suisse, pretax profit in its investment banking division rose 43 percent, the bank said last week. Barclays, which also reported earnings last Wednesday, said pretax profit for its investment bank rose 11 percent in the quarter.

Analysts say European banks are starting to recover from the fallout from numerous financial scandals that have hurt their reputations.

UBS, for example, has sought to rebuild trust among clients after it uncovered a $2.3 billion trading loss in 2011 connected with the activities of a former trader, Kweku M. Adoboli, who has since been sentenced to seven years in jail. In December, UBS said it would pay $1.5 billion in fines to settle a case related to the manipulation of the London interbank offered rate, or Libor.

Many of the other large European banks have also been ensnared in the rate-rigging scandal. Deutsche Bank has set aside 2.4 billion euros ($3.2 billion) to cover the potential cost of proceedings that include a tax evasion inquiry in Germany and an international investigation into accusations that its employees and those at other investment banks colluded to fix benchmark interest rates.

While financial institutions will continue to address such issues, there is a cautious optimism now about bank performance.

“There are still some headwinds, but banks are pretty much there when it comes to reaching the right level of capital and that is helpful,” said Cormac Leech, an analyst at Liberum Capital. “There is a new appetite for banks among investors. There’s a confidence that wasn’t there two years ago.”

Jack Ewing contributed reporting.

Article source: http://dealbook.nytimes.com/2013/04/30/during-earnings-season-european-banks-show-signs-of-health/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Watchmakers Find Gold Rush in China Is Slowing Down

April 27, 2013 by Leave a Comment

BASEL, SWITZERLAND — After opening hundreds of stores in China in recent years, some watch companies are facing an inventory glut and cutting back their retailing presence there.

The downsizing comes as shipments of timepieces to China from Switzerland, the world’s dominant luxury watch production center, have fallen below the levels of two years ago, after setting a record in 2012.

“The gold rush in China is over,” said François-Henry Bennahmias, chief executive of Audemars Piguet, a Swiss watch company that is closing 6 of its 22 stores in China. “We are going to slow down in China and take every step there much more carefully.”

Swiss watch exports to mainland China dropped 26 percent in the first quarter from a year earlier, to 323 million Swiss francs, or $343 million, according to data released in the past week by the Swiss Federation of the Watch Industry. Exports to Hong Kong fell 9 percent, to 910 million francs.

Over all, however, Swiss watch exports rose 2.3 percent in the first quarter, to 4.73 billion francs, buoyed by Middle Eastern and some European markets, particularly Germany and Britain.

“People simply went overboard about China, thinking that there could be no issue with suddenly opening 40 or 50 stores,” said John Simonian, a watch distributor and owner of Westime, a watch retailer based in Los Angeles. “The stores in China are now full of inventories, with no guarantee that they can all get sold.”

Affluent and travel-hungry Chinese are increasingly buying overseas. About half of Chinese spending on luxury goods occurs outside the mainland, according to a study released in December by the consulting firm McKinsey.

As a result, “50 square meters in Paris could be much more meaningful now than having those same 50 square meters in China,” said Mr. Bennahmias of Audemars Piguet.

The reassessment comes even though Chinese shoppers’ spending on luxury goods has grown to 25 percent of the world total, compared with 20 percent for U.S. shoppers, according to a study released in December by Bain, another consulting firm.

Still, Bain raised some red flags in light of the slight decline in luxury sales in China last year.

“Luxury brand stores in China need to deliver the same consumer experience in China as in France and Italy, or risk further deferral of spending to tourism,” Bain wrote.

Rather than focusing solely on China’s purchasing power, luxury goods companies should have paid closer attention to changes in Chinese travel and consumer habits, according to some executives.

“I think some people went too hard into China and simply didn’t take into account how keen the Chinese are to buy elsewhere — also to avoid paying high duties,” said Michel Parmigiani, founder of Parmigiani Fleurier, another Swiss watchmaker.

Taxes on luxury goods acquired within mainland China range from 20 percent to 70 percent, depending on the product category. But another important factor has been Beijing’s efforts to clamp down on the giving of expensive gifts as part of the government’s broader fight against corruption.

“Most people thought that gifting would last for a while, but there is now a real government crusade against it, so that it’s no longer acceptable to have a big chunky watch on your wrist, which in turn is affecting retailing, particularly in China’s big government cities,” said Jon Cox, an analyst at Kepler Capital Markets, who estimated that gift-giving accounted for half of the watches sold in mainland China.

“The question mark is now whether this will start spreading to everywhere else where the Chinese buy watches,” Mr. Cox said.

Nick Hayek, the chief executive of Swatch Group, the world’s largest watch company, said that some sort of cooling in the Chinese market was inevitable. “You cannot grow 30 percent in a market every year,” he said.

Article source: http://www.nytimes.com/2013/04/27/business/global/27iht-watch27.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: Julius Baer to Buy Stake in Italian Money Manager

November 13, 2012 by Leave a Comment

The headquarters of Julius Baer in Zurich.Michael Buholzer/ReutersThe headquarters of Julius Baer in Zurich.

LONDON – The Swiss bank Julius Baer agreed on Monday to buy about 20 percent of the Italian money manager Kairos Investment Management for an undisclosed amount.

The deal comes a month after Julius Baer announced about 1,000 job cuts after its deal with Bank of America Merrill Lynch to buy that bank’s private banking operations outside the United States and Japan for around $880 million.

Under the terms of the deal with Kairos, Julius Baer will acquire a 19.9 percent stake in the firm, which has about 4.5 billion euros ($5.7 billion) of assets under management. Julius Baer currently manages assets worth 184 billion Swiss francs ($194 billion).

Julius Baer said its private client business in Italy would be combined with Kairos’s existing business, adding that the two firms would set up a new private bank in Italy after receiving regulatory approval for the deal.

The combined wealth management division in Italy will be operated under the name Kairos Julius Baer, according to a company statement.

“Thanks to our strategic participation, we will increase our presence in the domestic Italian wealth management market,” Julius Baer’s chief executive, Boris F.J. Collardi, said in a statement. “This move underlines our commitment to further grow and develop our business in Italy.”

The two firms said they would decide after a few years whether Julius Baer would increase its stake in Kairos, according to a statement from Julius Baer.

Shares in Julius Baer rose less than 1 percent in morning trading in Zurich on Monday.

The deal is expected to close during the first half of 2013.

Article source: http://dealbook.nytimes.com/2012/11/12/julius-baer-to-buy-stake-in-italian-money-manager/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: Switzerland’s Credit Suisse Announces Job Cuts, Profit Rose 12% in Third Quarter

November 1, 2011 by Leave a Comment

Credit Suisse's Zurich headquarters.Gianluca Colla/Bloomberg NewsCredit Suisse’s Zurich headquarters.

LONDON — Credit Suisse, the second-largest Swiss bank, said on Tuesday that its third-quarter net profit rose 12 percent, to 683 million Swiss francs, even as the bank announced a further 1,500 jobs cuts as a result of the weak global economy and continued volatility in the financial markets.

The announcement missed market expectations. Analysts surveyed by Reuters had predicted a net profit of 1.1 billion francs ($1.2 billion).

Earnings were bolstered by a 1.4 billion franc accounting gain on Credit Suisse’s own debt, which helped offset falling returns from its investment banking, asset management and private banking operations.

Credit Suisse had already announced 2,000 job reductions in July as part of a cost-cutting effort. The new layoffs are expected to contribute to a one-time overall cost savings of 2 billion francs by the end of 2013, the bank said.

“During the third quarter we experienced a challenging environment with a high degree of uncertainty, low levels of client activity across businesses and extreme market volatility,” Credit Suisse’s chief executive, Brady W. Dougan, said in a statement. “We believe subdued economic growth and the low-interest-rate environment and increased regulation that we are seeing may persist for an extended period.”

Mr. Dougan said the 1,500 additional job cuts were a result of a reorganization of the bank’s operations, including a reduction in its investment banking operations and an expansion of its wealth management business.

The markets reacted negatively to the company’s earnings announcement. In early morning trading in Europe on Tuesday, Credit Suisse’s share price had fallen more than 7 percent.

Credit Suisse is the latest European bank to report less-than-impressive earnings linked to the Continent’s sovereign debt crisis.

Last week, Banco Santander of Spain reported a 13 percent drop in nine-month net profit, and UBS said earnings fell 39 percent in the third quarter from the period a year earlier, weighed down by a trading scandal that cost the bank $2.3 billion.

Other banks have fared slightly better. On Monday, Barclays of Britain said its profit rose 5 percent in the third quarter, helped by lower provisions for bad loans.

And Deutsche Bank of Germany reported a quarterly profit last Tuesday that exceeded analysts’ expectations, though it warned of future job reductions in its investment banking unit after a drop in trading revenue.

Credit Suisse’s investment banking division is expected to shrink after the bank announced a 50 percent reduction in its risk-weighted fixed-income assets by 2014. The move comes as the division reported a 190 million franc loss in the third quarter. That compares with a 394 million franc gain in the period a year earlier.

“The results are disappointing, but almost all the disappointment comes from investment banking,” analysts at J.P. Morgan Cazenove said in a report issued Tuesday.

The bank also said it had set aside 478 million francs in its private banking operations to offset legal costs related to tax evasion charges in both the United States and Germany. Third-quarter net profit in Credit Suisse’s private banking division dropped 78 percent, to 183 million francs, from the period a year earlier.

Mr. Dougan said the bank was focusing on new markets, particularly in the Asia-Pacific region, to expand its private banking business. Credit Suisse plans to increase revenue from emerging markets to 25 percent of the bank’s total by 2014. That compares with just 15 percent from countries like China, India and Brazil this year.

Like the rest of the European banking sector, Credit Suisse has been hit by volatility in the Continent’s financial markets and ongoing uncertainty related to the sovereign debt crisis.

The bank’s core Tier 1 ratio, a measure of the bank’s ability to withstand financial shocks, was 10 percent at the end of September. Banks in the euro zone are being required to raise their ratio to 9 percent to protect against exposure to the debt of countries at risk.

Article source: http://dealbook.nytimes.com/2011/11/01/credit-suisse-announces-job-cuts-profit-rose-12-in-third-quarter/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

DealBook: 2 European Banks Post Mixed Results

October 26, 2011 by Leave a Comment

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

Filed Under: Business News Tagged With: , ,