European Bank Profits to Fall, Spain Worst Hit
Published: Wednesday, 25 Jul 2012
By: Reuters
Europe's banks are expected to post sharp profit falls in second quarter results as they count the cost of the debt crisis and try to anticipate the impact of the Libor interest-rate rigging scandal on the industry.
The European economy is heading towards recession, making companies nervous about issuing stocks and bonds. Trading has slowed and this has hurt investment banking, typically the most lucrative part of a bank's business.
Retail banking is also under pressure with many southern European lenders weighed down by bad debts that have surged as the economy soured.
Spanish banks are the worst hit and have sought a rescue from Europe to stay afloat. Analysts expect belt-tightening and more bad debt provisioning when the bulk of Europe's banks start to report results this week.
They will also be looking for hints on the impact of the Libor scandal on the industry and future revenues.
"After a pick-up in Q1, we expect Q2 to be weak, and we struggle to see a meaningful pick up in H2," Credit Suisse research analysts said in a note to clients. "We expect to see banks revisiting restructuring plans, with capacity slowly coming out of the industry."
