European banks reserve billions in preparation for bad debt wave
Three of Europe’s largest banks have added billions to their bad debt reserves in preparation for one of the world’s worst crises on record.
Barclays, Deutsche Bank and Banco Santander collectively set aside nearly $ 6.6 billion in Q2 for expected loan losses linked in some way to the coronavirus pandemic, according to earnings reports released on Wednesday..
This is on top of the already huge amounts of funds they set aside this spring, bringing the total allocated by the three financial institutions this year to $ 14.5 billion, signaling a difficult outlook for European borrowers amid the economic downturn..
«The past six months have been some of the toughest in our history.», – said executive chairman Santander Ana Botín).
The Spanish bank also indicated the book value of its assets at 12.6 billion euros ($ 14.8 billion) due to a worsening forecast. Almost half of this amount is related to business in the UK, where the bank no longer expects to obtain the same indicators of economic value from acquisitions of small credit institutions in the early 2000s..
Santander’s pre-tax profit in the first half fell 49% from the same period a year earlier, driven by a sharp increase in bad debt provisions to more than € 7 billion ($ 8.2 billion).
Last week, European leaders agreed on a $ 2 trillion budget for an economic recovery stimulus package. About 750 billion euros ($ 880 billion) will go towards economic recovery in the EU countries that have been hit hardest by the coronavirus crisis. Earlier this month, the European Commission said it expects GDP to contract 8.3% in 2020, with growth projected at 5.8% next year..
London-based Barclays is gearing up for the worst, quadrupling bad debt coverage to £ 3.7bn ($ 4.8bn) from a year earlier due to expected exposure to Covid-19. Bank profit before tax fell by 58% over the reporting period.
The losses were partially offset by the investment bank of the Barclays family, which increased its profits by 31%, trading in extremely volatile markets.
General director Jes Staley has been promoting an investment bank for a long time despite struggling with Wall Street rivals and criticism from an investor activist Edward Bramson. «The reason we have been able to support the economy as hard as we do and remain financially resilient is because of our diversified universal banking model», – Staley said in a statement.
Barclays Says It Has Provided About £ 22 Billion ($ 28.5 Billion) In Government-Backed Loans To UK Businesses And Extended Lending Holidays 600,000 retail customers.
Meanwhile, Deutsche Bank is reaping the benefits of its sweeping restructuring plan launched last year. Troubled German bank announces pre-tax profit of 364 million euros ($ 427 million) vs. losses of 654 million euros ($ 767 million) in the same period last year.
«In a challenging environment, we have increased revenues and continued to cut costs, and we are fully on track to achieve all of our goals.», – CEO said Christian Sewing.
Like Barclays, Deutsche bank managed to capitalize on the turmoil in the markets. Investment banking revenues grew 31% over this period to nearly € 5 billion ($ 5.9 billion) thanks to trade fixed income instruments.
Deutsche Bank increased its bad debt provisions by 761 million euros ($ 894 million) in the second quarter, adding them to the 506 million euros ($ 594 million) that it set aside three months ago.