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Outlook stays bleak for top banks in Europe and Asia
Top banks in Asia and Europe bore the scars of the financial market downturn with sharp profit falls yesterday and said economic growth is set to slow, but investors in Europe said the news was better than feared.
- Reuters
- Published: 23:23 August 5, 2008
Tokyo, London: Top banks in Asia and Europe bore the scars of the financial market downturn with sharp profit falls yesterday and said economic growth is set to slow, but investors in Europe said the news was better than feared.
Net profits at Japan's Mitsubishi UFJ Financial Group and France's Societe Generale both fell about two-thirds, while Singapore's United Overseas Bank Ltd notched a small rise in profit but warned of a tough outlook.
UK-based Standard Chartered bucked the trend, with a 31 per cent jump in first-half profit, and said although Asian growth is likely to slow, it will continue to easily outpace western economies.
European bank shares jumped over 4 per cent by 1100 GMT as both SocGen and Standard Chartered beat expectations, lifting optimism that gloom about falling profits and the impact of the credit crunch may have been overdone.
While many Asian banks such as Mitsubishi UFJ and several big European names have avoided the crippling subprime losses that waylaid rivals Citigroup, Merrill Lynch and UBS, the market turmoil has sparked trading losses and the sputtering global economy has hit demand for loans.
The weakening economic outlook means investors should focus on lenders in economies less reliant on exports to the United States, said Daniel Tabbush, Asia bank analyst at brokerage CLSA.
"You want to be looking at the banks that have tended to do well against a US slowdown or do well relative to other banks in Asia when there is a slowdown within Asia," he said, adding that Japanese banks look increasingly less attractive.
In addition to another austere round of earnings results, analysts said the prospects for the year ahead were also grim.
"Asset quality and credit cycle will be the biggest issue confronting Asian banks in the second half of 2008 and 2009," said Matthew Wilson, banking analyst at Morgan Stanley.
"Growth is slowing, input costs are rising, borrowing costs are rising (and) currency moves are adverse, which would mean margin compression," Wilson said
HSBC, the biggest bank outside China, on Monday cautioned that growth is threatened by a potential US recession and rising global inflation. Its first-half profits fell 28 per cent, which it termed a "resilient performance". But Standard Chartered was more upbeat and said any slowdown in Asia would be relative.
"We expect a bit of a slowdown in most of our markets relative to the pace at which they've been travelling," said Chief Executive Peter Sands.
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