European banks beat estimates as bad loans fall
More of Europe's top banks beat earnings forecasts on Wednesday, as bad debts shrank more than expected in the first half, outweighing a slowdown in investment banking, which was hit by sovereign debt fears.
In a further sign of recovery, Societe Generale's (SOGN.PA) profit was nearly 50 percent higher than estimates, while Asian-focused Standard Chartered (STAN.L) posted record profits to beat forecasts.
Britain's Lloyds (LLOY.L) returned to profit as impairments halved, posting a 5 percent rise in net income.
The banks tempered their good results, with a heavy dose of caution as they remain wary of new regulations. So-called "Basel III" capital rules are looming, and while banks recently won a respite on the timeline for phasing in the rules, there are still concerns about their impact.
"There is fragility in the global economy and nervousness in financial markets," said StanChart Chairman John Peace, adding that UK banks in particular were disadvantaged by rules on taxes, remuneration and regulation.
For the most part, the banks reporting Wednesday followed the trend laid out by European leaders HSBC (HSBA.L) and BNP Paribas (BNPP.PA) showing bad debts are falling.
Investment banking income was hit for many banks as activity slumped following Greece's economic crisis which threatened to spread and rattled investors.
For investors, the sector is looking more attractive after it emerged from the July 23 results of pan-European stress tests mostly unscathed. This week's earnings look set to give banks another boost.
"The results tell you that emerging markets, like China, India and Brazil, are the markets to be (in) for generating good businesses," said Ted Huang, manager of the Pinebridge Asia High Yield Fund in Taipei, after StanChart's results.
European banking shares .SX7P have risen nearly 9 percent since the stress test results were released, against a rise of about 2.5 percent for European shares more broadly .FTEU3 and 8 percent for U.S. banking shares .BKX.
In early trading the sector index fell 1.1 percent, deeper than the decline for the broader market .FTEU3. SocGen rose 1.1 percent and Lloyds rose 1.6 percent.
Not All Good
Germany's Postbank (DPBGn.DE) bucked the trend by raising provisions for bad loans and scrapping profit targets despite reporting profits in-line with forecasts.
Bailed-out Allied Irish (ALBK.I) also said its first-half loss more than doubled, even as it reported progress improving its funding profile.
They join Italy's UniCredit (CRDI.MI), the biggest lender in central and eastern Europe, which delivered bad news on Tuesday. It missed estimates blaming goodwill impairments, falling trading income and high risk costs.
Shares in Postbank rose 0.4 percent while StanChart fell 4.9 percent and Allied Irish dropped 6.4 percent. UniCredit fell 3.3 percent as well.
Postbank, Germany's largest retail bank by clients said it expects earnings in the second half to lag the first half.
It threw out its medium-term profitability targets on the uncertainty caused by looming bank regulations, saying it could only give reliable targets once decisions had been made on potential bank taxes and core capital requirements.
[Source: Reuters, London, 04Aug10]
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