European banks take heavy loads as coronavirus impact emerges

Some of Europe’s biggest lenders reported heavy charges related to the coronavirus in the second quarter as the pandemicthe impact of on their businesses has become clearer.

germany

Deutsche Bank AG,

Comics -2.78%

the United Kingdom

Barclays PLC

BCS -3.17%

and that of Spain

Banco Santander SA

SAN -3.24%

all reported an increase in loan loss charges in the quarter ended June, compared to a year ago. While some have provisioned less than in the first quarter – when uncertainty was high as the virus spread – banks said they now have better control over the situation and the potential extent of losses they would face afterwards. having gone through months of lockdowns and an economic downturn. activity.

Deutsche Bank has set aside 761 million euros ($ 892 million) to cover potential losses on loans to borrowers affected by the coronavirus pandemic although he reported small second-quarter profit thanks to a strong performance from the investment bank on Wednesday. It recorded nearly 1.3 billion euros in bad debt charges in the first half, compared to 301 million euros a year ago.

Barclays

BCS -3.17%

net profit fell 91% after setting aside £ 1.62 billion ($ 2.10 billion) in loan loss provisions. Added to the £ 2.1 billion of provisions in the first quarter, the total is four times higher than the provisions of the first half of last year. The London-based lender’s UK unit suffered a loss, but its investment bank performed well.

Santander, based in Spain but with operations in Europe, Latin America and the United States, reported € 3.1 billion in credit losses for the quarter. Although lower than in the first three months of the year, the provision added to a massive charge of € 12.6 billion that it took on a lower valuation of some previous acquisitions, which she attributed to the deteriorating economic outlook caused by the pandemic. About half came from its UK operations, which are exposed to mortgages, where margins are tight. Santander’s US and Polish activities were also reassessed. The charge is one-time and will have no impact on its liquidity and capital ratios, but it led the lender to a loss of 11.13 billion euros in the second quarter.

“The past six months have been among the most difficult in our history,” said Ana Botin, executive chairman of the bank, adding that “the foundations of our business remain extremely strong”.

Although the banks have adopted a more optimistic tone for the rest of the year, the real impact of the pandemic on the European economy is yet to come. For example, many programs that have allowed people to continue working with the support of state money are due to expire later this year.

Actions of

Barclays

BCS -3.17%

and Santander lost around 5% in the afternoon trading. Deutsche Bank fell almost 4%. On a conference call with Deutsche Bank, analysts raised questions about the bank’s profitability outlook, as booming investment banking business is set to abate.

The coronavirus pandemic came as many European banks were already struggling to make money at an extremely low rate—even negative—A interest rate environment and an overcrowded banking sector. Deutsche Bank is particularly vulnerable. About a year ago, it announced strong cost cuts, exiting some US operations and selling a massive portfolio of risky and loss-making securities in an attempt to improve earnings.

Its restructuring, the latest in a series of attempts over the years, is seen by investors and analysts as the lender’s last chance to succeed as a stand-alone world bank.

Christian Sewing, CEO of Deutsche Bank, in Frankfurt on January 30.


Photo:

ralph orlowski / Reuters

But while Deutsche Bank’s core lending business has suffered from the pandemic and negative rate environment, its investment bank has received a big boost from its fundraising clients. and move them to fit the current situation.

The bank announced a 46% increase in investment banking revenue in the quarter, more than offsetting its other businesses, including personal loans. Likewise,

Barclays

BCS -3.17%

the profit of its corporate and investment bank increased by 16%. Its UK unit lost £ 123million in the second quarter, compared to a profit of £ 328million in the same quarter last year.

Barclays chief executive Jes Staley said the results were proof of the strength of its universal banking strategy. It has come under pressure from activist investor Edward Bramson, whose firm Sherborne Investors has said wants Barclays to downsize its investment banking and become a more focused consumer bank. Mr Staley told reporters on a conference call that Barclays was in a stronger position than during the previous global financial crisis.

“Our hope is to be a firewall in the economic recovery and in the management of the Covid-19 pandemic, very different from what happened with the banks ten years ago”, he declared.

Economists have long used letters of the alphabet like V and U to describe economic recoveries. But the coronavirus slowdown is so different from past recessions that economists are offering new forms to describe the potential recovery. WSJ explains. Illustration: Jacob Reynolds

Deutsche Bank CFO James von Moltke told reporters on a conference call that investment banking activity is expected to normalize in the future. Still, the rise was enough to improve the bank’s earnings outlook for the year. Mr von Moltke said management continues to strive to be profitable, pre-tax, this year.

“We are doing everything in our power to achieve our goals,” he said.

Deutsche Bank has gained from being based in Germany, where the the government has published big plans to support the economy. Of Deutsche Bank’s loan portfolio, 47% is in Germany, followed by 22% in the rest of Europe and 20% in the United States, according to a recent banking presentation. Part of German loans are made to mortgage creditors.

In Santander, the bank spread its loan loss charges over several geographic areas, including Spain, Brazil, Mexico and the United States. The bank said it was working on the assumption of an economic contraction this year and a recovery over two to three years.

Barclays provided around £ 21 billion in government-backed emergency loans, deferred payments for more than 600,000 customers and waived some bank charges in the first half of 2020, Mr Staley said.

“It is clear that we have faced extraordinary economic challenges,” said Mr Staley. “We have tried to be as favorable as possible to our consumers.”

Write to Patricia Kowsmann at patricia.kowsmann@wsj.com and Simon Clark at simon.clark@wsj.com

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