By Patricia Kowsmann and Simon Clark
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 30, 2020).
Some of Europe's biggest lenders reported hefty
coronavirus-related charges in the second quarter as the pandemic's
impact on their businesses became clearer.
Germany's Deutsche Bank AG, the U.K.'s Barclays PLC and Spain's
Banco Santander SA all reported an increase in loan-loss charges in
the three months ended June, compared with a year ago. While some
provisioned less than in the first quarter -- when uncertainty was
high as the virus spread -- the banks said they now have a better
handle on the situation and the potential scale of the losses they
will face after struggling through months of lockdowns and sinking
Deutsche Bank set aside EUR761 million ($892 million) to cover
potential losses on loans to borrowers hurt by the coronavirus
pandemic although it reported a small second-quarter profit on the
back of a strong investment banking performance on Wednesday. It
has booked almost EUR1.3 billion in loan-loss charges in the first
half of the year, compared with EUR301 million a year ago.
Barclays' net profit dropped 91% after it set aside GBP1.62 billion
($2.10 billion) in provisions for losses from loans. When added to
GBP2.1 billion of provisions in the first quarter, the total is
four times higher than provisions in the first half of last year.
The London-based lender's U.K. unit swung to a loss but its
investment bank performed well.
Santander, based in Spain but with operations in Europe, Latin
America and the U.S., reported EUR3.1 billion in credit losses for
the quarter. While smaller than in the first three months of the
year, the provision added to a massive EUR12.6 billion charge it
took from a lower valuation of some previous acquisitions, which it
attributed to the deterioration in the economic outlook caused by
the pandemic. About half came from its U.K. business, which is
exposed to mortgage lending, where margins are being squeezed.
Santander's U.S. and Polish businesses were also revalued. The
charge is a one-off and won't have impact on its liquidity and
capital ratios, but it drove the lender to a second-quarter loss of
"The past six months have been among the most challenging in our
history, " Ana Botin, the bank's executive chairman, said, but
added "the foundations of our business remain extremely
Although the banks struck a more optimistic tone for the rest of
the year, the real impact of the pandemic on Europe's economy still
lies ahead. For instance, many programs that have kept people
employed with the support of state money are due to expire later
Shares of Barclays and Santander were down around 5% in
afternoon trading. Deutsche Bank fell close to 4%. In a Deutsche
Bank conference call, analysts raised questions about the bank's
profitability outlook, given the booming investment-banking
activities are set to subside.
The coronavirus pandemic came as many European banks were
already having a hard time making money in an extremely low -- or
even negative -- rates environment and an overcrowded banking
sector. Deutsche Bank is particularly vulnerable. Roughly a year
ago it announced sharp cost cuts, the exit from certain businesses
in the U.S. and the sale of a massive portfolio of risky,
loss-making securities in an effort to improve its earnings.
Its restructuring -- the latest in a string of attempts over the
years -- is considered by investors and analysts as the lender's
last chance to succeed as a stand-alone global bank.
But while Deutsche Bank's bread-and-butter lending business has
suffered under the pandemic and the negative rates environment, its
investment bank got a big boost from clients raising money and
moving it around to adapt to the current situation.
The bank reported a 46% rise in investment banking revenue in
the quarter, more than offsetting its other businesses, including
retail lending. Likewise, Barclays said profit at its corporate and
investment bank rose 16%. Its U.K. unit lost GBP123 million in the
second quarter, down from a profit of GBP328 million in the same
quarter last year.
Barclays Chief Executive Jes Staley said the results were proof
of the strength of his universal banking strategy. He has been
under pressure from activist investor Edward Bramson, whose firm
Sherborne Investors has said it wants Barclays to shrink its
investment bank and become a more narrowly focused consumer bank.
Mr. Staley told journalists on a conference call that Barclays was
in a stronger position than during the previous global financial
"Our hope is to be a firewall in the economic recovery and in
dealing with the Covid-19 pandemic, much different than what
happened with the banks some 10 years ago," he said.
Deutsche Bank Chief Financial Officer James von Moltke told
reporters on a conference call that investment-banking activity is
expected to normalize going forward. Still, the rise has been
enough to improve the bank's revenue outlook for the year. Mr. von
Moltke said management continues to work toward being profitable,
on a pretax level, this year.
"We are doing everything in our control to deliver our goals,"
Deutsche Bank has gained from being based in Germany, where the
government released big support packages for the economy. Of
Deutsche Bank's loan book, 47% is in Germany, followed by 22% in
the rest of Europe and 20% in the U.S., according to a recent bank
presentation. A chunk of the German loans are to mortgage
At Santander, the bank spread its loan-loss charges throughout
several geographies, including in Spain, Brazil, Mexico and the
U.S. The bank said it is working on the assumption of an economic
contraction this year and a recovery over two to three years.
Barclays provided about GBP21 billion of government-backed
emergency loans, deferred payments for more than 600,000 customers
and canceled some banking fees during the first half of 2020, Mr.
"Clearly we've faced extraordinary economic challenges," Mr.
Staley said. "We have tried to be as supportive to our consumers as
we can be."
Write to Patricia Kowsmann at firstname.lastname@example.org and
Simon Clark at email@example.com
(END) Dow Jones Newswires
July 30, 2020 02:47 ET (06:47 GMT)
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