Battered European banks brace for a tough year ahead

Three European banks said yesterday they were preparing for a tough year after taking body blows in the last quarter of 2008 from a credit crisis that has forced them to seek government help.

France's Société Générale eked out a small profit for the fourth quarter, compared to a big year-ago loss when it was hit by a rogue trading scandal, while ING of the Netherlands and Germany's Commerzbank reported losses yesterday. The three banks are among many lenders in Europe that have sought billions of euros of state help to rebuild balance sheets battered by the crisis.

Société Générale said yesterday it has put expansion plans for Russia on ice and re-organised its corporate and investment banking activities while ING said it would aim to preserve capital in 2009 and focus on fewer markets.

Société Générale proposed a dividend of €1.2 (Dh5.54) per share – a third higher than last year. It said it entered 2009 with a solid capital position and unveiled a Tier 1 ratio of 8.8 per cent.

"The dividend was a bit above our estimates and the Tier 1 ratio still looks OK," said an analyst, who declined to be named.

The French government had urged moderation in dividend payments in exchange for state loans to ease access to credit.

Commerzbank slid deeper into the red late in 2008 as lending for commercial property projects and trading racked up heavy losses in its "most difficult year ever".

With the promise of another very difficult year ahead, Germany's second-largest lender unveiled a bumper 2008 loss in its corporates and markets business of €1.7 billion and a hike in the money it set aside for defaults on real estate loans.

Analysts at Keefe, Bruyette & Woods said in a note that it was hard to assess the health of the German bank's balance sheet but the loss was less pronounced than feared.

Société Générale said it expects the market to remain challenging throughout 2009 as the French bank posted fourth-quarter profit that missed market expectations. Net profit of €87 million was below analysts' average forecast of €122m, but rebounded from a loss of €3.35bn a year earlier when the bank was hit by a €4.9bn trading loss blamed on rogue deals by Jerome Kerviel, a former Société Générale junior trader.

Earlier this month, Swiss banks UBS and Credit Suisse posted fourth-quarter losses of CHF8bn (Dh25.16bn) and CHF6bn, respectively, while the Lloyds Banking Group of Britain unveiled an £8.5bn (Dh44.45bn) loss at its HBOS unit.

Société Générale said it booked a €300m goodwill impairment on its Russian operations, adding it would postpone its business plan for Russia. Société Générale owns Russia's Rosbank.

ING posted a fourth-quarter loss of €3.7bn due to writedowns and said it would focus on fewer businesses and markets.

ING Chairman and designated Chief Executive Jan Hommen told reporters at a briefing that early indications for its banking business in the first quarter were "quite positive", but added: "To make a full forecast for the full quarter that is so depending on the volatility of markets I think that is very difficult to do."

Two leading ratings agencies said the ratings of emerging European banks and their west European bank owners could suffer as recession bites, and the warnings caused a sell-off in European stocks and currencies.

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