As Earnings Season Rolls On, European Banks Show Signs of Health

European BanksDespite of persistent unemployment, malaise, continuing debt problems, sector in Europe seems to be benefiting: the European banks. After years of painful job cuts and moves to make portfolios less risky, few large European institutions reported strong first-quarter results in recent days, helped by cost-cutting and the better performance of major units. On Tuesday, Swiss bank UBS and Lloyds Banking Group of Britain surprised investors by reporting better than expected earnings for first quarter, sending shares of both banks up. 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 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. UBS, for instance, reported on Tuesday first-quarter profit of 988 million Swiss francs ($1 bill). 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. The shares of UBS soared 5.67% in trading in Zurich on Tuesday. Sergio P. Ermotti, the chief executive, cautioned that it was “too early to declare victory,” but said the earnings showed the company’s “business model works in practice.” Some investors note that 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, the European banks are moving actively to address their problems, including by slashing costs in the face of changing regulations and a sluggish European economy. Deutsche Bank reported on Monday after markets closed that its first-quarter profit rose as cost-cutting offset a decline in revenue from investment banking. Deutsche Bank’s stock also rose 4.7% in Frankfurt on Tuesday on the news that it would issue new shares to bolster its capital reserves. “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. UBS 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 (…..)

Link: http://dealbook.nytimes.com/2013/04/30/during-earnings-season-european-banks-show-signs-of-health/

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Consultor Internacional

6 Responses to As Earnings Season Rolls On, European Banks Show Signs of Health

  1. Professor Uziel Nogueira says: European banks showing better than expected earnings is good news. The European banking business model is recovering. This leads to comparison with the US. First, european banks are dealing effectively with billions of bad real estate debt of their portfolio. Wall Street is far from solving the bad debt hangover. Second, despite structural weaknesses of some eurozone member countries, the common currency continues solid and highly competitive. A competitive currency is fundamental to reactivate the exporting sector of countries undergoing structural reforms like Greece, Portugal, Ireland, Cyprus and Spain. Third, the european political leadership -led by Ms. Merkel/Germany- is dealing effectively with the public debt crisis. A strong banking system combined with economic reforms and sustainable public budgets are the ONLY answer for future growth, job creation and prosperity in the eurozone. Fourth, there is one big difference between the european and american approaches. In Europe, the political leadership -led by Germany- is facing the problems up front and dealing effectively with them. In the US, Congress and White House muddle through and avoid policy reforms to sustain growth and create enough jobs for the middle class. The perception is european leaders knowing what to do while US politicians still fogged up and lost in space. As far as economic-financial reforms post financial meltdown 2009 goes, Europe is getting ahead while the US trails.

    http://dealbook.nytimes.com/2013/04/30/during-earnings-season-european-banks-show-signs-of-health/

  2. The European Central Bank cut its benchmark interest rate to a record low Thursday, a mostly symbolic move that could lift morale in the euro zone but is unlikely to jolt the Continent out of recession. The central bank, meeting in Bratislava, Slovakia, cut its benchmark interest rate to 0.5 percent from 0.75 percent, which was already a record low. It was the first change in interest rates since July 2012 and the bank’s fourth cut since Mario Draghi took over as president of the bank in November 2011. A cut was widely expected following a series of economic indicators in recent weeks foreshadowing an extended downturn in the euro zone, with recession even threatening the seemingly unstoppable German economy. On Thursday, two stalwarts of corporate Germany, BMW and Siemens, warned of lower profit for 2013 because of the downturn in European markets (…..)

    http://www.nytimes.com/2013/05/03/business/global/03iht-euro03.html

  3. Wall Street bankers and some of the world’s top finance ministers are waging a bitter international campaign to block Washington financial regulators from extending their policing powers far beyond the nation’s shores. The effort — centered on oversight of the $700 trillion marketplace of the financial instruments known as derivatives — is just one front in the battle still being waged nearly three years after Congress passed the Dodd-Frank law, which revamped financial regulations in the United States in hopes of curtailing the risky trading practices blamed for the global financial crisis in 2008. Industry players have spent tens of millions of dollars to avert, delay or weaken new rules that are being drafted as part of the law. Members of Congress from both parties have joined in the effort, directed at an obscure but increasingly powerful agency, the Commodity Futures Trading Commission, which has written and must approve some of the most contentious provisions. Banks and overseas regulators are resisting an agency proposal, intended to go into full effect as early as mid-July, that would require overseas offices of American-based banks, foreign institutions and hedge funds to turn over information on foreign trades if they involve United States customers, or are guaranteed by a financial institution with American ties, requirements that the industry calls redundant and excessive. The battle — led by high-powered lawyers and lobbyists, including former top regulators and Congressional staff members, like a former aide to retired Representative Barney Frank, a chief author of the law — has played out in hundreds of meetings with Gary Gensler, the chairman of the commission, other commission members and major players on Capitol Hill. It has divided Democrats in Congress, caused strains in the commission and provoked public charges by industry officials that Mr. Gensler is overreaching his authority and private complaints that he is “reckless” and “stubborn.” A former investment banker, Mr. Gensler defends his proposals, arguing that too many bad bets in the global derivatives market can be traced to overseas locations — including the $6 billion loss last year by a JPMorgan Chase trader called the London Whale — and threatened markets in the United States. “It would be letting down the American public if we said, we are just about to complete the task but now, let’s retreat,” Mr. Gensler said in an interview. “If we don’t do this right, we will blow a hole in the bottom of the boat of reform.” Industry officials argue that the proposals, called the cross-border guidance, will inevitably produce conflicts with foreign regulators and perhaps even drive trading away from Wall Street banks to competitors overseas. “We should all care, because that cost will have to be passed on, in the form of higher prices for products sold to consumers or a lower return for investors,” said Kenneth E. Bentsen Jr., a former House lawmaker turned financial industry lobbyist, whose organization Sifma has urged Mr. Gensler to compromise on the cross-border rules (…..)

    http://www.nytimes.com/2013/05/01/business/banks-criticize-strict-controls-for-foreign-bets.html

  4. Professor Uziel Nogueira says:


    Legislation to oversight the $700 trillion marketplace of derivatives is serious business in the global world of finances dominated by the US dollar. This legislation is an acid test to know who controls the system in the post Wall Street meltdown of 2009. Government or banksters? In the eurozone, the German government is surely taking control. How about the US?

    http://www.nytimes.com/2013/05/01/business/banks-criticize-strict-controls-for-foreign-bets.html

  5. It is a scene that has played out over and over at the federal courthouse in Lower Manhattan. A once high-flying hedge fund trader stands before a judge, often apologizing for his misdeeds. A high-priced defense lawyer asks for leniency, arguing that the client has lived — outside of his insider trading crimes — an otherwise admirable life. After listening intently, the judge rejects those pleas and sends the defendant to prison. Todd Newman became the latest to join the parade of Wall Street traders — along with a smattering of business executives, management consultants and corporate lawyers — who went through this routine and had their lives upended by the government’s crackdown on insider trading. In his almost five years of trading technology stocks at Diamondback Capital Management, Mr. Newman, 48, earned more than $10 million. On Thursday, he received a prison sentence of four and a half years. “This is a crime that has an impact across an economy and across a society,” said Judge Richard J. Sullivan, who presided over Mr. Newman’s trial and handed down the sentence. “This was a stark crossing of the line, engaging in criminal conduct, and that’s just wrong.” Last December, a jury convicted Mr. Newman and another former hedge fund trader, Anthony Chiasson, co-founder of Level Global Investors, of a conspiring with six others to earn about $70 million illegally trading technology stocks. The charges centered on trading in shares of Dell and Nvidia based on secret financial information obtained from insiders at the companies. The case is one of several insider trading prosecutions that has ensnared SAC Capital Advisors, the giant $14 billion hedge fund run by the investor Steven A. Cohen that has become a focus of the government’s inquiry. Federal prosecutors have charged two former SAC employees with participating in the conspiracy involving Mr. Newman. Jon Horvath, a former SAC technology stock analyst, admitted to being a part of the ring last year. In March, Mr. Horvath’s boss, Michael S. Steinberg, was also charged. Mr. Steinberg has pleaded not guilty. Mr. Cohen has not been charged with any wrongdoing and has said that he behaved appropriately at all times. On Thursday, SAC announced several measures to beef up its legal and compliance effort, including clawing back pay for employees who break the law. The case involving Mr. Newman has another connection to SAC: both Diamondback and Level Global, which are now defunct, were started by SAC alumni (…..)

    http://dealbook.nytimes.com/2013/05/02/hedge-fund-trader-sentenced-to-4-12-years-in-insider-case/

  6. Professor Uziel Nogueira says: American capitalism is truly unique. Prior to Wall Street meltdown of 2009, the financial industry worked in a laissez faire way without constraints or any regulations enforced. Bank CEOs were the rulers of the universe and the media loved them. Today, the crime section of newspapers is where news about bankers and high fly financiers are now found. America loves winners but hate losers. What a change of fortunes of yesterday’s rulers of the universe.

    http://dealbook.nytimes.com/2013/05/02/hedge-fund-trader-sentenced-to-4-12-years-in-insider-case/

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