Europe’s Banks Split on Economy as Virus Sparks Bad-Loan Jump
Europe’s Banks Split on Economy as Virus Sparks Bad-Loan Jump
(Bloomberg) --
Europe’s biggest banks expressed different views of how the economy will fare in the fallout from the coronavirus, making for widely varying expectations of how much of their loan books will go bad.
Deutsche Bank AG and France’s Societe Generale SA gave the rosiest estimates of the eurozone economy among the continent’s biggest banks, while Italy’s UniCredit SpA was the most pessimistic. The banks also set aside varying amounts of provisions for future bad credit, suggesting that investors could see lower returns if the economic forecasts prove too optimistic.
The world is set for its deepest recession in living memory as efforts to fight the virus shut down large swathes of the economy. The European Central Bank has encouraged lenders to avoid a sharp spike in provisions that could choke lending when companies need it most. That acknowledges how dependent the region is on bank loans and how weak financial institutions are after years of negative interest rates and piecemeal cost cuts.
Here are three charts that show which banks are took the brightest and dimmest views on the economy in their first-quarter earnings presentations and how that’s playing out in their reserves for future bad loans. The forecasts generally corresponded with those made by the banks’ own economists.
Italy has been at the epicenter of the crisis, and that shows when UniCredit Chief Executive Officer Jean Pierre Mustier speaks of “economic disasters” for individuals and companies alike. It’s also reflected in the bank’s outlook for the eurozone as well as its provisions, which are among the highest in the region.
Italy’s lenders are more pessimistic on this year’s economy than the International Monetary Fund. Intesa Sanpaolo SpA, Italy’s biggest bank, expects the country’s tourism, hotel and transportation industries to be “impacted in a massive way.” Still, the financial strength of Italian companies and families coupled with government measures to support the economy should also deliver a bigger rebound than the IMF expects, according to Intesa CEO Carlo Messina.
Deutsche Bank limited the amount it set aside for doubtful loans by heeding the ECB’s advice to take a longer-term view and factor in a recovery, according to Chief Financial Officer James von Moltke. The bank also cited the quality of its borrowers as well as the fact that its German clients benefit from one of the world’s most extensive aid packages. Still, analysts at Berenberg say Deutsche Bank used outdated and overly optimistic assumptions on the economy. The Bundesbank expects banks will report higher loan loss provisions starting in the third quarter.
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