- Title: FRANCE/UK: More major European banks beat earnings forecasts
- Date: 5th August 2010
- Summary: LONDON, ENGLAND, UK (AUGUST 04, 2010) (ORIGINALLY 4:3) (REUTERS) (SOUNDBITE) (English) PETER DIXON, ECONOMIST AT COMMERZBANK, SAYING: "It's going to take, I think, a number of years of strong growth and strong expansion before we can say that the banking sector has returned to what you might term normality. It still remains very fragile, it's still not providing the credit to the economy that the policymakers would like to see, so I think that the process of balance sheet reconstruction in the euro zone will be an ongoing issue and even though the issues of recession will start to have less of an impact on banks' actions in the course of the next few months it doesn't mean that banks are clear by any means."
- Embargoed: 20th August 2010 13:00
- Topics: Economic News
- Reuters ID: LVA9S8KB71XA6246FE3GYU98780S
- Story Text: More of Europe's top banks reported improving results on Wednesday (August 4) with higher-than-expected profits because of shrinking bad debts which have more than offset losses in investment banking.
French bank Societe Generale beat forecasts to announce an almost four-fold leap in second-quarter net profit but warned that economic recovery was still fragile.
The bank reported a second-quarter net profit of 1.08 billion euros, up from 309 million euros a year ago when heavier provision and asset writedowns weighed on the bottom line.
The latest results comfortably beat the 732 million euros profit forecast in a Reuters poll of 11 analysts.
Societe Generale is battling to restore investor confidence after the financial crisis with a new management team under Chief Executive Frederic Oudea.
The bank last month easily passed a Europe-wide stress test with a Tier 1 capital ratio of 10 percent. It said on Wednesday it was confident of hitting long-term targets under its 'Ambition 2015' strategic plan that includes a 2012 net profit on six billion euros (7.8 billion U.S. dollars).
"Societe Generale has just published good results, meaning the basis of comparison is extremely favourable because the beginning of 2009 was an extremely difficult semester for the bank located at La Defense," said Francois Chaulet, a market analyst at Montsegur Finance Asset Management.
"Clearly the tendency which is one of improvement is in the process of getting the Societe Generale out of the tunnel after some difficult years marked by the Kerviel affair, dented by the provisioning for writedown of risky assets which required a capital increase. So now we can see that Societe General is well in the process of coming out of the crisis."
Britain's biggest retail bank Lloyds also beat forecasts on Wednesday as it reported its first profit in two years and said it expected its performance to strengthen as the UK economy recovers.
Lloyds Banking Group said lower-than-expected bad debts had propelled it to a pre-tax profit of 1.6 billion pounds (2.48 billion USD) in the first half of 2010 compared with a loss of 3.96 billion pounds a year earlier.
The figures are a dramatic reversal for Lloyds which was bailed out by the British taxpayer during the credit crisis.
Lloyds CEO Eric Daniels said: "All of the trends are moving in the right direction. Income is up, costs were down and impairments were very far down so that's good news for the taxpayer, that's good news for all of our stakeholders. I think, if you think about it, healthy banks are a good thing for the economy. The economy needs banks to lend, that we serve a vital part of society and having healthy banks is a very good thing."
Asian-focused Standard Chartered posted record half-year profits of 3.2 billion USD, up ten percent on the year and just ahead of expectations as bad debts more than halved.
But Commerzbank economist Peter Dixon and many other analysts are warning the banks are not out of trouble yet. "It's going to take, I think, a number of years of strong growth and strong expansion before we can say that the banking sector has returned to what you might term normality," said Dixon.
"It still remains very fragile, it's still not providing the credit to the economy that the policy makers would like to see, so I think that the process of balance sheet reconstruction in the euro zone will be an ongoing issue and even though the issues of recession will start to have less of an impact on banks' actions in the course of the next few months it doesn't mean that banks are clear by any means."
Analysts say the decline in bad debts is good news but they would rather see profits driven by improvements in revenue.
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