European banks beat estimates as bad loans shrink

Some of Europe’s top banks met or beat earnings expectations on Wednesday, as bad debts shrank and retail operations more than offset losses in investment banking.

The banks tempered their good results, though, with a heavy dose of caution on the fragility of the economic recovery.

French SocGen’s profit was nearly 50 percent higher than estimates, while London-listed, Asian-focused Standard Chartered posted record profits to just beat forecasts. Germany’s Postbank profit also came in line with estimates but bucked the trend by raising provisions for bad loans.

Britain’s Lloyds posted a 5 percent rise in net income on a sharp drop in impairments. Bailed-out Allied Irish said its first-half loss more than doubled, but it also saw progress improving its funding and forecast an EU approval for its restructuring.

The banks reporting Wednesday followed the trend laid out earlier this week by European leaders HSBC and BNP Paribas, which topped forecasts on a drop in bad debts despite declines in investment banking.

The sector was generally looking more confident after emerging from the July 23 results of pan-European stress testing mostly unscathed, and this week’s earnings reports appear to have given it another boost.

European banking shares 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 and 8 percent for U.S. banking shares.

But not all have delivered good news. Italy’s UniCredit — the biggest lender in central and eastern Europe — missed estimates on Tuesday on goodwill impairments, falling trading income and persistently high costs of risk.

Analysts said the UniCredit results demonstrated that Europe’s top banks have some way to go before they are fully recovered from their recessionary hangover.

SocGen and Standard Chartered, among others, echoed those comments on Wednesday; SocGen in particular called the recovery “fragile” and said European growth prospects “remain moderate.”

Source: Reuters