Europe’s Bank Leaders Display Confidence Amid Worsening Crisis

(Bloomberg) --

Europe’s banks want you to know they’re safe.

While politicians across the continent deliver somber forecasts and unprecedented support packages, senior executives at lenders including Deutsche Bank AG and UBS Group AG joined a chorus of bankers claiming that ample capital cushions and healthy credit portfolios mean their industry will weather the present storm.

Deutsche Bank is “well-positioned” for the crisis and business in its fixed-income trading unit has been resilient, Chief Transformation Officer Fabrizio Campelli said at a conference on Wednesday. He re-affirmed the lender’s 2020 financial targets. UBS can withstand a “severe stressed scenario” in global markets, Chief Financial Officer Kirt Gardner said at the same conference.

The confidence is rooted in groundbreaking aid from governments around the region. Yet, their sanguine tone contrasts with widespread alarm in the markets. UBS and Societe Generale AG’s chiefs have highlighted how clients are drawing down on their credit lines, even if they don’t need them. And the comments themselves were made in a starkly different setting: A virtual seminar held by Morgan Stanley that in previous years drew hundreds of attendees.

Loan Subsidies

Governments are stepping in to offer loans and guarantees running into the hundreds of billions of euros to prevent a spike in corporate defaults that would weigh on banks’ balance sheets. Regulators are rolling back years of stricter capital requirements to free up funds to lend and weather losses. Central banks are also providing access to funds to keep the gears of the global economy greased.

The role of these funding backstops “will continue to be critical” to prevent the crisis from spreading to banks, Goldman Sachs Group Inc. analysts led by Jernej Omahen said in a note on Wednesday. “Their availability will ensure financial stability during this crisis period.”

The measures haven’t shielded Europe’s banking industry from the rout in global markets. The Stoxx Europe 600 Banks index is down more than 40% since the crisis onset on Feb. 20, while the price for insuring against banks defaulting on their bonds -- known as credit-default swaps -- has surged to new highs.

The willingness of governments to support banks is underpinned by the role lenders play in keeping businesses afloat. Several European governments have unveiled large-scale programs for subsidized company loans over the past seven days.

“The crisis of 2008 originated in the financial system, partly because banks couldn’t control their risks anymore, and then spread to the rest of the economy,” Deutsche Bank Chief Executive Officer Christian Sewing said in an interview with FAS over the weekend. “It’s the opposite way around this time, and we can be part of the solution.”

Much will depend on how deep and long the economic crisis will be. Deutsche Bank analysts in a note Wednesday predicted an annualized contraction of more than 23% in the euro area economy in the second quarter.

At this week’s Morgan Stanley conference, Barclays Plc struck a less confident note, saying it will struggle to reach its full-year profitability target and it’s considering cutting bonuses.

©2020 Bloomberg L.P.