EDITADO:

European banks

The brighter side

Bad debts are peaking and pay falling at Europe’s banks

Feb 17th 2010 | From The Economist online

TWO YEARS ago banks began to include in their results announcements
tables meant to show that their exposure to toxic securities was under
control. The crisis has moved on: now one European financial firm’s
presentation includes a slide that pleads, “limited exposure to
sovereign debt [of] Portugal, Ireland, Greece and Spain”. Yet whatever
Europe’s macroeconomic woes, there is actually a more optimistic picture
emerging from its lenders. While the view of some forecasters,
including the IMF, has been that European banks were sitting on a bad
debt time-bomb, the evidence from fourth-quarter results is that the
pace at which loans are souring has peaked.

Many of the big firms that had reported full year results by
Wednesday February 17th, including BNP Paribas, showed a sequential
quarterly decline in bad-debt provisions. Even for those that did not,
for example Britain’s Barclays, bad-debt charges came in lower than
expected. In almost all cases banks’ bosses made soothing sounds about
bad debts reaching a peak in 2009. This picture even appears to extend
to the dodgiest corner of banks’ loan books: eastern Europe. Bad-debt
charges there remain high. But from Belgium’s KBC to the banks of Sweden
and Norway, most firms active in the region hinted that the pace at
which loans are turning sour is slowing, even if there is still a big
stock of rubbish to clean up. If these suggestions are correct, then
overall loss rates on eastern European loans will be far below the 10%
or so the IMF projected during the depths of the crisis last year.

If their balance sheets are looking cleaner there is little sense of
business as usual at Europe’s banks, particularly with regard to
compensation. Barclays’ investment-banking unit, which has taken a
fairly unapologetic attitude towards pay until now, paid out 38% of its
revenue, down from 44% in 2008. The bank’s two top executives also
declined any bonus for the second year running. BNP’s investment-banking
unit went further, cutting compensation to 28% of revenues from a usual
rate of about 40%. At those banks which got bail outs, the medicine is
far harsher. ING has so far cut its banking unit’s assets by a fifth
from their peak, and is preparing for a full separation of its banking
and insurance arms. KBC aims to shrink its risk-adjusted assets by a
quarter and is giving up some of its international activities.

The overall result of lower pay and bad debts and the closure of
flaky business divisions should be to boost profits. What is notable is
how little of those profits are being channeled into dividends. BNP is
distributing 32% of its profits for 2009, but has given shareholders the
option of receiving those dividends in shares, which conserves capital.
Barclays is paying out less than 5% of its profits in cash.

Part of this conservatism reflects the continuing uncertainty over
the ongoing overhaul of the banks’ capital regime, dubbed Basel 3. Most
banks are running with core capital ratios of 8-10%, but the changes are
likely to penalise trading assets and force through a tougher
definition of what counts as core equity. Banks will also be nervous
about bad debts. These tend to fall quite quickly—Simon Samuels, an
analyst at Barclays Capital, reckons that since 1980 European banks’
impairment losses typically drop to about half of their highest level
within a year after that peak is reached. But there is still enough
uncertainty out there to make banks extremely cautious. While there is
speculation that supposedly risk-free governments might default, that
conservatism looks merited

http://www.economist.com/daily/news/displaystory.cfm?story_id=15542735&fsrc=nwl

¿No estaré yo fijándome demasiado en The Economist, dándoles mucho pábulo?.

Carlos Marcelo

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