Europe’s biggest banks see profits hit by eurozone debt crisis

Switzerland’s biggest bank UBS and Deutsche Bank, Germany’s largest lender, have both posted sharp falls in profits for Q2 as fees and commissions dwindled in the face of the eurozone crisis.

The Swiss bank’s net income declined 58% to Sfr425m, down from Sfr1.02bn the year before, according to the BBC.

Meanwhile, Deutsche’s quarterly earnings slid 63% to €375m, from €969m the previous year.

Both banks put the losses down to the European debt crisis and the economic downturn in the US.

UBS chief executive Sergio Ermotti is shrinking UBS’s investment bank by more than half to focus on wealth management, as rising capital requirements and Europe’s sovereign-debt crisis drag on profitability at the securities unit.

Earnings from the UBS wealth management division fell 25% to Sfr502m in the quarter, reflecting lower client activity. The division attracted Sfr13.2bn of net new money. Pre-tax profits from the US division almost doubled (43%) to Sfr200m, a record increase.

Ermotti said in a statement: “We are determined to extend our advantage as the best capitalized bank in our peer group under current and future regulatory requirements. Clients recognize this and continue to entrust us with their assets.”

UBS has a strong capital position relative to Credit Suisse, says Reuters. A note from analysts at Espirito Santo Investment Bank says UBS is “extending its private banking superiority”. They have a sell rating on Credit Suisse and a buy on UBS shares.

It warned it would look into making further cost savings. The Swiss group is already in the process of cutting 3,500 jobs.

Co-chief executives of Deutsche bank, Juergen Fitschen and Anshu Jain, added their bank had been hit by the volatile environment.

They said: “In the second quarter, the bank’s performance was impacted by a volatile environment. The European sovereign debt crisis continues to weigh on investor confidence and client activity across the bank.”

 

This article was first published on Investment Week and appears here with additional reporting by Investment Europe

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