UBS AG, Deutsche Bank AG and Lloyds Banking Group Plc posted profit that topped analysts’ estimates in a sign Europe’s largest lenders are rebounding from the financial crisis after years of job cuts, loan losses and capital raising.
UBS rose as much as 7.3 percent in Swiss trading after posting first-quarter net income that was twice analysts’ estimates. Deutsche Bank jumped in Frankfurt on higher earnings and plans to raise 5 billion euros ($6.5 billion) in capital, while Lloyds gained in London as profit almost tripled.
“Businesses getting their costs in order -- that is really the feature of these performances,” said Simon Maughan, an analyst at Olivetree Securities Ltd. in London.
UBS, which announced 10,000 job cuts last year and the exit from most debt-trading businesses to focus on wealth management, attracted the most net new money from investors since 2007 in the first quarter and almost doubled earnings at its securities unit. Deutsche Bank increased net income and raised almost 3 billion euros in a share sale to bolster its capital ratios. Lloyds beat estimates as loan losses fell, prompting Chief Financial Officer George Culmer to tell reporters the bank’s “transformation is ahead of schedule.”
UBS rose 5.7 percent to 16.60 francs by 11:30 a.m. in Zurich, bringing the gain in the past year to 47 percent. Deutsche Bank rose 7.5 percent to 35.37 euros after gaining as much as 7.9 percent, the biggest increase since August. Lloyds climbed as much as 6.9 percent and was 4.5 percent higher at 55.90 pence.
Net income at UBS, the biggest Swiss bank, was 988 million Swiss francs ($1.05 billion), more than twice the 412.3 million-franc mean estimate of nine analysts surveyed by Bloomberg.
“UBS caught us by surprise,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA with a neutral rating on the stock. “It seems very clear that the equities business was a blowout. And wealth management had very strong inflows.”
The investment bank posted a 92 percent gain in pretax profit to 977 million francs, and a return on equity, a measure of profitability, of 49.5 percent for the quarter. The wealth management division attracted 15 billion francs from investors in the quarter, with all regions registering net inflows.
“It’s too early to talk about vindication or to declare victory, but I think I’m extremely pleased with the progress we made so far in executing our strategy,” Chief Executive Officer Sergio Ermotti, 52, said in an interview with Bloomberg Television in Zurich, where the company is based. “It’s working. I’m very pleased to see that clients are responding well to the strategy.”
At Deutsche Bank, CEO Anshu Jain timed the capital increase to coincide with a 19 percent jump in first-quarter earnings to 1.65 billion euros. He’s boosting reserves after Standard & Poor’s warned of a possible credit rating downgrade and as the U.S. Federal Reserve considers a rule that would require European banks to hold more capital at their U.S. units.
“We are now among the best capitalized banks in our global peer group,” Jain, 50, said on a conference call with analysts and investors today.
The share sale increases Deutsche Bank’s core Tier 1 capital adequacy ratio under Basel III rules, a key measure of financial strength, to about 9.5 percent, the lender said. JPMorgan reported a ratio of 8.9 percent in the first quarter and Goldman Sachs Group Inc. 9 percent, according to data compiled by Bloomberg Industries. UBS said today its ratio is 10.1 percent.
“Deutsche Bank is finally starting to address its capital issues,” JPMorgan Chase & Co. analysts Kian Abouhossein and Amit Ranjan wrote as they raised the company to overweight from neutral. While the firm has “transformed to one of the best capitalized” large European banks, it isn’t “out of the woods” given costs for stricter regulation and legal issues, they said.
CFO Stefan Krause said on a call with analysts today that the firm has “materially completed” a plan to eliminate about 1,500 positions at its investment bank unit and related support areas as part of wider job cuts.
At Lloyds, pretax profit before exceptional items rose to 1.48 billion pounds ($2.3 billion) from 497 million pounds in the year-earlier period, beating the 1.03 billion-pound median estimate of nine analysts surveyed by Bloomberg. Provisions fell 40 percent to 1 billion pounds, the London-based bank said in a statement. Analysts had forecast 1.1 billion pounds.
CEO Antonio Horta-Osorio is cutting expenses to strengthen the bank’s balance sheet and said costs had fallen 6 percent to 2.4 billion pounds in the quarter. Lloyds said it expects to reduce expenses to 9.2 billion pounds this year, about 2 billion pounds less than in 2010 and twice the lender’s initial target.
Horta-Osorio’s attempts to return the 39 percent government-owned bank to full-year profit have been hampered by more than 12.1 billion pounds of losses tied to the collapse of the Irish real estate market and the spiraling cost of compensating clients who were sold payment-protection insurance they didn’t need. The lender made no additional provision to the 6.8 billion pounds it has already set aside for PPI redress.
“We remain confident in achieving our existing guidance,” Horta-Osorio, 49, said in the statement. The lender expects a “substantially reduced” impairment charge for 2013 and plans to make a further 200 million pounds of cost cuts this year.
Lloyds, which has climbed 18 percent this year, still trades for less than the 61 pence the government paid for its holding when it bailed out Lloyds in 2008 following its takeover of HBOS Plc. The bank hasn’t paid a dividend since its bailout and didn’t disclose any plans today to resume the payments.
“It’s doing well in a very weak economy,” said Cormac Leech, a banking analyst at Liberum Capital Ltd. in London with a buy rating on the shares. “The balance sheet is steadily improving. The fact they can do as well as they have in this environment shows their market dominance.”