Positive second-quarter results continue

UK and European banks have posted positive latest second-quarter results, led by strong investment banking revenues - but suffered from tightening credit spreads.

On August 4, BNP Paribas announced a €1.6 billion net profit for the second quarter, representing a 6.6% rise from €1.51 billion recorded in the same quarter in 2008. The firm's investment banking business was the most profitable area, with a pre-tax profit of €1.15 billion.

The bank also received €261 million from its acquisition of Fortis, which was completed in May. However, as a result of the acquisition, the firm also incurred charges of €4.1 billion in writing off goodwills and intangible assets, and fair-value adjustments on assets and liabilities, as well as €3.2 billion in additional provisions for credit risks. The firm also lost €237 million as a result of the revaluation of its own debt.

UK bank Barclays also had a profitable second quarter, with the bulk of the revenue generated by its investment banking business, Barclays Capital. On August 3, the bank announced a net profit of £2.34 billion for the first half of the year, up 10% from £2.13 billion in the previous year.

Barclays Capital saw pre-tax profits double to £1.05 billion from £524 million in the same period in 2008. The investment bank's fixed-income, currency and commodities business had an income of £7.89 billion compared with £3.74 billion in the previous half year in 2008. Income from the bank's equities and prime brokerage services rose to £1.63 billion from £631 million, as a result of its acquisition of Lehman Brothers' US business.

The investment bank also suffered credit market writedowns of £4.68 billion, which included £1.17 billion of impairments and a loss of £893 million on holdings of its own credit compared with a gain of £852 million in the year before.

On August 3, another London-based firm, HSBC, also posted a profit. However, its pre-tax profit shrank to $5.02 billion for the first half of 2009 from $10.25 billion in the same period last year.

Profits were driven by its global banking and markets businesses, which reported a pre-tax profit of $6.3 billion, more than double the figure for the previous year. In addition, commercial banking delivered a pre-tax profit of $2.4 billion in the first half of 2009.

The bank blamed the collapse in its overall profits largely on changes in credit spreads, which incurred a $2.5 billion loss for the firm, compared with a gain of $8 million in the previous year.

Standard Chartered, which also has its global headquarters in London, announced its results on August 4, posting a pre-tax profit of $2.84 billion for the first half of 2009, up 10% from $2.59 billion in the same period in 2008. The most profitable businesses were wholesale banking and consumer banking.

However, the bank also suffered impairment losses on loans and advances and other credit risk provisions of $1.09 billion, more than double the $465 million seen in 2008.

In parallel with its results, the firm also announced it would raise approximately £1 billion through an accelerated book-build. "We are strong and with more capital we will be even stronger," the bank explained.

Swiss bank UBS recorded a second-quarter loss attributable to shareholders of Sfr1.40 billion ($1.32 billion), the bank's third successive quarterly loss.

The firm attributed the negative result to a Sfr1.21 billion charge on its own credit, restructuring charges of Sfr582 million and a goodwill impairment charge of Sfr492 million related to the sale of UBS Pactual, the bank's Latin American business. Excluding these factors, the bank would have posted a pre-tax profit of Sfr971 million, it said.

The investment bank, which has been the main source of UBS's losses in the past few quarters, recorded a pre-tax loss of Sfr1.85 billion, down from the Sfr3.16 billion loss for the first quarter.

See also: European banks report modest Q2, despite increased provisioning
Trading and one-off gains lift bank profits