08 February 2018

Financial Times: European banks show signs of recovery

Europe’s banking sector offered a rare glimmer of hope after leading Italian, French and German lenders reported better than forecast results, boosted by the strengthening eurozone economy and their own cost-cutting efforts.

Eurozone banks have been the laggards of their sector for several years, weighed down by negative interest rates and high levels of bad loans. Yet analysts said there were nascent signs of recovery in the fourth-quarter figures published by Italy’s UniCredit, France’s Société Générale and Germany’s Commerzbank.

“It’s been a decent week for European banks so far,” said Eoin Mullany, banks analyst at Berenberg. “Cost-cutting is starting to bear fruit for some, others have strong fee growth, but there is no one theme that unifies them.”

The star performer was UniCredit, which reported its best fourth-quarter profit figure for a decade, boosted by lower operating costs and a big drop in provisions for bad loans alongside strong revenue growth and a reduced tax bill. “UniCredit beat on all lines,” Morgan Stanley analysts said in a note.

Jean-Pierre Mustier, who launched a drastic restructuring to cut costs and shrink bad loans after becoming UniCredit chief executive in 2016, said he was “very pleased” with the results. He hailed the “increasingly strong commercial dynamics across the group, underpinned by the revamped commercial banking networks, particularly in Italy”.

SocGen also outstripped analysts’ forecasts, helped by strong revenue growth in its eastern European and African operations and a resilient performance at its investment bank compared to steeper falls in trading at rivals.

Commerzbank, which is widely seen as a potential takeover target after struggling to turn round its sluggish performance for years, posted fourth-quarter net income of €90m, down from €182m a year ago but ahead of forecasts at €64m.

Shares in Germany’s second-biggest bank lost their early gains and closed down 2.4 per cent despite its promise to reinstate a dividend in 2018. Martin Zielke, chief executive, called 2017 a year of “good progress,” after revenues inched up to €8.61bn, excluding one-off items.

Full article on Financial Times (subscription required)

© Financial Times