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September 5, 2008
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Europe’s 25 largest banks reported weak results for the first half of the year which were, however, by and large in line with expectations. [more]
European banks' results in H1 2008: Back to the old days and old ways? Chart in focus European banks' results in H1 2008: Back to the old days and old ways? September 5, 2008 Europe’s 25 largest banks reported weak results for the first half of the year which were, however, by and large in line with expectations. Net interest income (+12% year-on-year) was more or less the only profit driver and remained strong on the back of stronger growth of interest revenues than expenses – though this aggregate result masks a wide range of individual results. Fees and commissions suffered (-11%) from lower transaction volumes and valuations, and trading income was, in aggregate, completely wiped out due to significant markdowns at several banks. All in all, revenues fell by 29% from the record level reached in H1 2007. Loan loss provisions soared by 54%. At first glance, the results seem to indicate a return to the past: interest income, mainly deriving from modest-growing retail banking, has regained its position as by far the largest share of banks’ revenues, while trading income fell back from the extraordinary benign years 2005-07. Similarly, loan losses had reached very low levels in 2005/06, so their recent steep increase is, at least so far, hardly more than a cyclical shift back to average levels. But the adjustment goes beyond the profit and loss account: there are also signs of a beginning deleveraging process, as growth of banks’ total assets slowed from 15% to only 4% year-on-year (in fact, balance sheets as well as risk-weighted assets shrank compared with Q1). Total equity increased slightly year-on-year due to capital measures at a few large banks following substantial subprime losses. At the bottom line, net profits and average return on equity (6.9% in H1 2008) went down by about two-thirds from a record level in the prior-year period, as lower staff compensation could not offset the decline in revenues. However, not too much should be read into the results: they primarily reflect the current market environment and are, in our view, not a reflection of a strategic re-orientation or a return to the old business model of banks. ...more information on Banking, Financial Markets and Regulation Chart in focus - Archive Seite 1 von 1 Jan Schildbach (+49) 69 910-31717