By Margot Patrick And Anuj Gangahar
LONDON-- Deutsche Bank AG's warning that it expects a 6.2
billion-euro ($6.98 billion) third-quarter loss highlights a
potentially bumpy financial-reporting season looming for European
banks, as a slate of new chief executives confront concerns over
profitability.
Credit Suisse Group AG, Standard Chartered PLC and Deutsche Bank
AG, all under new chief executives, are among banks facing muted
growth in their home markets and coping with more stringent
regulation and capital requirements.
Those issues, coupled with factors including uncertainty over
China's growth, U.S. interest rates and the slide in global
commodities prices, have combined to depress profits for European
banks.
Meanwhile, U.S. rivals, most of which restructured fairly
quickly following the global financial crisis, are now in growth
mode, winning business away from European rivals, who have been
slower to adapt.
European banks need to rethink quickly or risk losing more
ground, according to analysts.
Restructuring "remains top of the agenda" for Europe's banks,
analysts at Morgan Stanley wrote in a note this week, predicting
U.S. banks once again would put in a better revenue performance
this year in fixed income and equities and continue beating
European rivals next year across investment banking.
Deutsche Bank late on Wednesday took a multi-billion-dollar
charge against assets in its investment bank and retail- and
private-banking operations for the third quarter. It said the
charge would materially impact third-quarter results, which it
reports on Oct. 29. New chief executive John Cryan on that day will
announce a new strategy, widely expected to ratchet up the bank's
earlier attempts to cut costs and shed unwanted assets.
Credit Suisse Chief Executive Tidjane Thiam, who joined the bank
in July, is expected to outline sharp investment banking cuts, as
part of an effort to meet global capital rules and new Swiss
bank-specific requirements. The bank is also thought to be readying
a substantial capital increase to be unveiled alongside Mr. Thiam's
grand plan.
A poll of investors by Goldman Sachs analysts found 91% expected
the bank to raise more than 5 billion Swiss francs ($5.16 billion)
in fresh capital.
On Thursday, in response to an article in the Financial Times
that reported that Credit Suisse planned to raise an amount in line
with that figure, the bank said: "we are conducting a thorough
assessment of Credit Suisse's strategy, evaluating all options for
the group, its businesses and its capital usage and
requirements."
Standard Chartered, under new chief executive Bill Winters, is
also considering raising equity, according to analysts and people
familiar with the matter. Standard Chartered is among U.K. banks
most exposed to commodities and China, two markets under intense
pressure in recent weeks. The bank could raise as much as $8
billion, according to Jefferies analyst Joseph Dickerson.
At Barclays, investment banking head Tom King last month told
analysts the division is smaller but better positioned after a
two-year process of going from being a balance sheet,
revenue-focused investment bank "to a much more returns-based
model."
He said the bank saved costs by cutting back on managing
directors, the highest internal rank below the most-senior
executives, which typically includes division heads and trading
desk managers. Barclays previously has said around 7,000 jobs in
all will be cut in the unit.
The bank is set to name a new CEO within the next few months.
Barclays officials say the post may go to a former investment
banker, raising the likelihood of more structural tweaks.
Elsewhere, HSBC Holdings PLC previously has said it is ending
relationships with hundreds of clients who weren't making it enough
money. In the third quarter, it continued a reduction of assets it
loaded up on before the financial crisis, such as U.S.
mortgage-backed securities.
Chief Executive Stuart Gulliver said in August that HSBC's
Global Banking & Markets business is "the right size" in terms
making money and serving clients but that low-returning loans and
other boom-time assets were eating up too much of the unit's
capital.
Meanwhile, Royal Bank of Scotland Group PLC continues to slash
jobs and pull out of countries covered by its investment bank. The
bank cut several high level capital-markets jobs last month and
assigned new responsibilities to sales head Scott Satriano, now
head of financing & risk solutions, and Kieran Higgins, who
took over flow sales in addition to being head of sales.
The British bank, 73% owned by the government, has taken the
most-radical moves in moving out of investment banking to focus
instead on lending to domestic businesses and households.
Write to Margot Patrick at margot.patrick@wsj.com
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(END) Dow Jones Newswires
October 08, 2015 14:43 ET (18:43 GMT)
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