May 29, 2012
The largest European banks (excl. British institutions) reported net revenues of EUR 85.5 bn and a net profit of EUR 14 bn for the first three months of the year, down 6% and 27% yoy, respectively. Helped already by cheap funding in the form of 3-year ECB loans, net interest income rose by 3.5%, while fees & commissions (-4%) and trading income (-17%) declined.
The poor revenue development had been expected, and the results statements also contained some positives: i) Banks are starting to make progress on costs. Administrative expenses fell by 1% yoy, the first decrease in a first quarter since 2008 (how long cost discipline can be maintained is another matter). ii) The real bright spot: capital levels. Core Tier 1 jumped by an impressive 60 bp both qoq and yoy (incl. the shift to Basel 2.5) to 10.8%, which means banks should meet the new requirements in time. Only 4 out of 22 institutions (incl. UK banks) reported single-digit CT1 ratios. De-risking played a major role – RWAs sank by 3% qoq. Still, with total assets staying nearly flat, fears of a credit crunch have proven unjustified so far; at least on a broad, European-wide basis. Stronger capitalisation levels obviously come at a high price, though: average post-tax ROE in the normally strongest quarter of the year, at a mere 7.2%, was disappointing. It was small comfort that no individual bank made a net loss.
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