European Banks Perform, As Fears of Further Deleveraging ContinueVW Staff
BNP Paribas SA (EPA:BNP), the largest French Bank, recently posted its earning reports, and investors are likely to approve the showing.
BNP, which is based in Paris, showed an increase in net profit by 10%, and the management said that it was on track to achieve its Capital strengths predictions. The good performance by the giant bank was buoyed by the sale of a real estate business, and net income was 2.9 billion Euros, which was an increase of around 9.6% from the same period last year. In fact, the performance beat estimates that were made by analysts, who had made a prediction of 2.3 billion Euros.
Revenue for the bank in the first three months was 9.9 billion Euros, and this was a drop of 15.4% from the previous year. This showing was attributed to a 142 million euro loss, from the sale of sovereign bonds, an 843 million euro charge gotten from a revaluation of its own debt, and a 74 million euro loss from the sale of loans. In fact, the head of the giant French banks pointed out that without all these charges, revenue for the bank would have dropped by only 6.3%.
However, income was boosted by a number of individual items like the sale of a 29% stake in Klépierre, a French real estate firm that trades publicly, and which runs over 270 shopping centres in 13 countries in Europe. The Simon Property Group, Inc (NYSE:SPG) is the firm that bought the stake in March.
Royal Bank of Scotland Group plc (NYSE:RBS) (LON:RBS) is another European company, which also posted great results for the quarter. The bank, whose principal partner is the British Government, had a great showing, and reports indicate that it was close to repaying all of its debt, gotten from government-backed emergency loans.
Profits for the bank increased 4%, to reach £1.18 billion, up from £ 1.13 billion. In fact, the bank’s management said that they would start paying dividends for the various shares in the company. This move is meant to restore confidence among investors, and shareholders of the firm.
The bank’s great performance can be attributed to Mr. Hester, who scaled back on the riskier assets the company had, and also cut costs and jobs, and shrank massively the investment banking side.
However, even as some banks performed well, there were fears of further deleveraging among European banks, with fears that balance sheets could be forced to shrink by as much as $3.8 trillion, or roughly around 7% of all assets held by the banks. The deleveraging could come in from various areas, but more pointedly, cuts in lending and also from sales of non core assets and sale of securities. Financial analysts however, warn that this move is not welcomed because; the deleveraging will slow growth in the region massively.
In 2011, the global economy suffered a major set back when there arose various concerns on the euro’s financial stability. This led to stressing of markets, throught the currency zone, and liquidity went to the drains as investors grew wary of the risks implicated, by the euro’s instability.