NOT PRETTY

What Europe’s banks earned, how they spun it, and what they said about Brexit

Obsession
Future of Finance
Obsession
Future of Finance

Europe’s biggest banks have been reporting their first-half earnings over the past two weeks. The results aren’t pretty.

Profits and share prices are down across the industry, with earnings eroded by low or negative interest rates across the continent. Many lenders are still struggling to restructure their businesses, and continue to face legal fines for past misdeeds. And then there’s Brexit, and all the uncertainty that it brings to the UK economy, London’s position as a world financial center, and much else besides.

Needless to say, it took all the powers of persuasion that CEOs could muster to put a good spin on their banks’ latest results. Here’s what they had to say…

HSBC

What happened?
First-half profit dropped by 29% at Europe’s biggest bank. In the end, though, the company managed to push its share price higher by unveiling a plan to buy back up to $2.5 billion in shares.

How did they spin it?
CEO Stuart Gulliver said the bank “performed reasonably well… in the face of considerable uncertainty.”

Anything on Brexit?
“Following the outcome of the UK referendum, there has been a period of volatility and uncertainty, which is likely to continue for some time,” Gulliver said.

Deutsche Bank

What happened?
Second-quarter profit fell a staggering 98%, wiped out by restructuring and seemingly never-ending litigation costs. The bank’s shares languished near all-time lows, leading to the company being booted from the blue-chip Stoxx 50 index.

How did they spin it?
CEO John Cryan said: “The overall report card for the quarter shows reasonably pleasing progress in some trying circumstances.”

Anything on Brexit?
“Initial market turbulence has since been replaced by a degree of market confidence and the power of British pragmatism to make the best of unexpected events,” Cryan added during a conference call.

Credit Suisse

What happened?
The Swiss bank returned to profit between April and June after two quarters of losses, but earnings were still down 84% from a year ago. Investors weren’t impressed and the company’s shares sank; like Deutsche Bank, the Swiss lender was also kicked out of the Stoxx 50 index as a result.

How did they spin it?
“It’s the first time we’ve seeing absolute costs going down—it’s a beginning but a good beginning,” CEO Tidjane Thiam told Bloomberg.

Anything about Brexit?
“We have to look for where there is profitable growth and push capital towards those areas… Our plan has been to fundamentally reduce our footprint in London,” Thiam told CNBC. The bank has already cut more than 1,000 jobs in the British capital.

Barclays

What happened?
Second-quarter profit dropped by more than 50% but the bank’s shares rose after it become apparent that its bond-trading business is doing better than that of its European rivals. (This part of the industry has been hit particularly hard by low interest rates.)

How did they spin it?
“A really good quarter for us actually,” said CEO Jes Staley.

Anything on Brexit?
“We are detecting some understandable caution in consumer and business confidence following the referendum and signs that some decisions are potentially being put on pause or pushed out while people see how events play out,” Staley told investors. “However, in my view, it is too early to say whether this will be an enduring condition.”

Royal Bank of Scotland

What happened?
The bank’s second-quarter loss was much worse than feared, at £1.1 billion ($1.5 billion). CEO Ross McEwan said the bank, still majority owned by taxpayers after a series of bailouts, might not hit its 2019 restructuring goals as a result. RBS has lost more than £50 billion since 2008.

How did they spin it?
“The results demonstrate the underlying strength of our core business, generating solid operating returns in a currently low interest environment,” the bank’s chairman, Howard Davies, said.

Anything on Brexit?
“The UK is our home market and banks reflect the economies they serve. We know that an economic slowdown as a result of the leave vote will have an impact on us. But, I think, it’s too early to assess what that full impact will be,” CEO Ross McEwan said on a conference call.

UBS

What happened?
Second-quarter profit fell slightly but managed to beat analysts’ expectations.

How did they spin it?
“We achieved this strong result by helping our clients navigate continued difficult market conditions, while staying disciplined on risk and further reducing cost,” said CEO Sergio Ermotti, in exquisite corporatespeak.

Anything on Brexit?
“The slowdown in economic growth, the challenging interest rate environment and the geopolitical turmoil, including Brexit, intensified the storm of uncertainty in the industry,” Ermotti added.

Lloyds Banking Group

What happened?
Profit fell by 5% (pdf) in the first half. The British bank said it would cut another 3,000 jobs, on top of 1,200 already axed this year.

How did they spin it?
“We have delivered a good financial performance in the first half of 2016, with robust underlying profit, a doubling of statutory profit and…” we’ll spare you the rest of the jargony statement from CEO António Horta-Osório.

Anything on Brexit?
“It’s very uncertain what will happen, very important to see the government economic plan, government social plan apart from the negotiation with the EU, very important to see how other banks will react. And therefore, it’s quite uncertain.” If not insightful, the remarks from Horta-Osório at least sounded honest.

BNP Paribas

What happened?
France’s biggest bank reported a whopping 0.2% rise in second-quarter profit. Break out the champagne!

How did they spin it?
“A good overall performance in a still challenging environment,” the bank said in a statement.

Anything on Brexit?
Not really. CFO Lars Machenil told Bloomberg that it’s too early to say how the referendum will impact clients’ UK investments, or whether Paris might gain as a financial center at London’s expense.

UniCredit

What happened?
Second-quarter profit jumped by 75% from a year earlier but that didn’t matter to investors, who fretted about the bank’s thin capital cushion (a problem for lots of Italian banks these days).

How did they spin it ?
“Revenues were resilient, despite the macroeconomic environment,” said CEO Federico Ghizzoni.

Anything on Brexit?
Not specifically, but six times during a call with analysts, executives mentioned working in a “challenging” environment.

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