Euro banks spread gloom as profits, forecasts fall

NP Paribas Chief Executive Officer Baudouin Prot speaks during a news conference to announce the bank’s third-quarter results in Paris November 5, 2008.

PARIS (Reuters) – A raft of European bank results did little to lift gloom around the sector on Wednesday, with a recurring trend of falling profits and rising bad debts stemming from the global financial crisis.

France’s biggest bank BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz) posted a 56 percent fall in third-quarter profits, Allied Irish Banks (ALBK.I: Quote, Profile, Research, Stock Buzz) cut its earnings forecast, and Greece’s Emporiki Bank (CBGr.AT: Quote, Profile, Research, Stock Buzz) swung to a loss.

Capital rebuilding continued in the face of a tough outlook as Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) looked to raise up to 3 billion pounds ($4.7 billion) from a government-backed bond, and Austria’s Raiffeisen Zentralbank said it may ask the government for 2 billion euros ($2.6 billion).

By 7:15 a.m. EST the DJ Stoxx banking index was down 0.7 percent, led by 4 percent falls for BNP and Allied Irish.

Profits have tumbled across the sector, and several banks have warned of more writedowns and rising bad debts this year, though there is optimism that government rescue packages have left balance sheets strong enough to withstand more losses.

BNP’s falling profit told a tale familiar to many banks nursing the bruises of exposure to collapsed investment bank Lehman Brothers, state-rescued U.S. lenders Fannie Mae and Freddie Mac, crisis-hit Iceland and struggling monoline insurers, but it said it was well placed to come through and grow.

“The bank is not immune to the economic environment,” said Christoph Bossmann, analyst at WestLB.

“The top-line growth is still convincing, as the bank is obviously gaining market share in various businesses,” he said, but added that bad loans would rise in the coming quarters and hurt earnings this year and beyond.


BNP said net profit more than halved to 901 million euros in the third quarter, below analysts’ forecasts, as its bad debt charge jumped to 2 billion euros, four times as big as a year ago.

“Getting back to normal is going to take some time. But we are heading in the right direction,” said BNP Paribas Chief Executive Baudouin Prot.

Elsewhere, Germany’s second-largest bank Commerzbank AG (CBKG.DE: Quote, Profile, Research, Stock Buzz) said it had a relatively comfortable liquidity position, and Allied Irish said its capital position was good and would remain so.

Allied Irish, Ireland’s biggest bank by market value, cut its full-year earnings per share target to around 120 euro cents to reflect higher bad debt charges, costly funding and the cost of the government bank guarantee scheme.

AIB also said it planned to increase its core tier 1 capital ratio to 7 percent “over time” from a targeted 6 percent at the end of 2008, but without diluting existing shareholdings.

RBS moved to further shore up its capital by becoming the third bank to sell bonds backed by a UK government guarantee.

The dual sterling and euro bonds will be priced on Thursday, RBS said. The bank is likely to raise up to 3 billion pounds, a person familiar with the deal said. RBS shares rose 5 percent.

RBS is already raising 20 billion pounds to rebuild capital hurt by writedowns on toxic assets and its acquisition of ABN AMRO last year. It warned on Tuesday it faces more writedowns and rising bad debts this quarter, which could drag it to its first ever full-year loss.

In Austria, Raiffeisen invited investors to a meeting paving the way to asking the government for up to 2 billion euros.

Switzerland’s UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz), the world’s biggest wealth manager, said it was looking at past bonuses, an issue that has disgruntled public and regulators alike, saying its board would consider repaying bonuses already granted.

(Additional reporting by George Hatzidakis, Christian Gutlederer, Jason Rhodes, Andras Gergely; Writing by Chris Wickham and Steve Slater, editing by Will Waterman)

By Sudip Kar-Gupta
Wed Nov 5, 2008 8:02am EST

Source: Reuters

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