Two more European banks hit by global market downturn
PARIS: Global market turmoil took the shine off the earnings of two more European banks on Wednesday.
BNP Paribas, one of the largest banks in France, reported a 42 percent decline in fourth-quarter profit after writing down the value of securities hurt by worsening credit markets.
And Alliance Leicester of Britain warned that a big rise in funding costs would derail 2008 profit after a writedown on risky assets hit 2007s results.
BNP Paribas said net income fell to \1.01 billion, or $1.47 billion, from \1.72 billion a year earlier, matching the estimated earnings figures BNP Paribas released on Jan. 30. The banks shares fell 30 cents to \59.69.
BNP Paribas took \589 million worth of writedowns on leveraged loans and debt backed by bond insurers, and set aside \309 million linked to U.S. loans and securities. But the banks \1.2 billion costs in 2007 related to the U.S. subprime crisis were dwarfed by the more than $18 billion of markdowns by UBS, the largest European bank, and were less than those of rivals in France, Sociйtй Gйnйrale and Crйdit Agricole.
“This shows the banks strategy allows it to make it through a crisis,” said Benoоt de Broissia, a fund manager at Richelieu Finance. “It came out better than its French and European counterparts.”
BNP Paribass full-year profit rose 7 percent to \7.8 billion, a record for the bank. The French company was one of the first banks publicly caught up in the credit market seizure in August when it froze three funds, saying it could no longer find prices for some of the securities that it held. The funds were later reopened.
Alliance Leicester surprised investors by estimating that funding would cost about 150 million, or $292 million, more this year than under normal circumstances as it takes precautions to avoid the crisis that hit a rival bank, Northern Rock, last year.
The news, alongside a 30 percent drop in 2007 profits, a gloomy outlook into 2009 and dividends that were put on hold have sent the banks shares down over 18 percent to a record low.
Alliance Leicester suffered a 185 million writedown on its exposure to assets that have been tarnished by the U.S. sub-prime housing crisis - in line with guidance three weeks ago. That cut its 2007 pretax profit to 399 million, below an average forecast of 416 million, according to Reuters estimates.
The bank reported higher funding costs of 23 million in the fourth quarter and said that 2008 costs would be 150 million more than usual as it had “taken prudent measures” to increase its level of liquidity and the maturity of its wholesale funding, due to the risks of short-term balance sheet financing.
“Thats come at a cost, but we feel its the right thing to do to pay the price for security,” said Chris Rhodes, the finance director who is also acting as chief executive.
“Were now talking about a very strong funding position that takes us into Q1 2009,” he said about the first quarter, but added that some of the higher costs will be repeated in 2009. Rhodes said the bank had not considered tapping the Bank of England for funds.
“It wasnt an option to take funding from the Bank of England because of the stigma that is attached to it.”
