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European banks show signs of recovery

European companies

European banks show signs of recovery

Strengthening economy and cost-cutting lift UniCredit, SocGen and Commerzbank

UniCredit reported its best fourth-quarter profit figure for a decade © Bloomberg

Europe’s banking sector offered a rare glimmer of hope on Thursday after leading Italian, French and German lenders reported better than forecast results, boosted by the strengthening eurozone economy and their own cost-cutting efforts.

Eurozone banks have been the laggards of their sector for several years, weighed down by negative interest rates and high levels of bad loans. Yet analysts said there were nascent signs of recovery in the fourth-quarter figures published by Italy’s UniCredit, France’s Société Générale and Germany’s Commerzbank.

“It’s been a decent week for European banks so far,” said Eoin Mullany, banks analyst at Berenberg. “Cost-cutting is starting to bear fruit for some, others have strong fee growth, but there is no one theme that unifies them.”

The star performer was UniCredit, which reported its best fourth-quarter profit figure for a decade, boosted by lower operating costs and a big drop in provisions for bad loans alongside strong revenue growth and a reduced tax bill. “UniCredit beat on all lines,” Morgan Stanley analysts said in a note.

Jean-Pierre Mustier, who launched a drastic restructuring to cut costs and shrink bad loans after becoming UniCredit chief executive in 2016, said he was “very pleased” with the results. He hailed the “increasingly strong commercial dynamics across the group, underpinned by the revamped commercial banking networks, particularly in Italy”.

Italy’s biggest bank by assets reported a fourth-quarter net profit of €801m, compared to a €13.6bn loss a year ago, and said it planned to restart its dividend at 32 cents a share after scrapping its payout last year. Its shares, which have gained 45 per cent in the past year, rose 3 per cent on Thursday.

SocGen also outstripped analysts’ forecasts, helped by strong revenue growth in its eastern European and African operations and a resilient performance at its investment bank compared to steeper falls in trading at rivals.

The French bank’s net income fell to €69m in the fourth quarter, down 82 per cent over the previous year. However, analysts had expected a loss of €300m, because of high restructuring costs and a one-off hit from tax reform, according to Reuters data. Revenue came in at €6.32bn, beating expectations. Its shares rose 2.2 per cent.

In November, SocGen unveiled a strategic plan that includes closing 15 per cent of its branch network and cutting up to 900 jobs in France by 2020 as it seeks to cut costs and accelerate its move into digital banking.

If you look at this year’s numbers you see we are at an inflection point as banks are starting to be managed for shareholders rather than regulators

George Karamanos, banks analyst at Keefe, Bruyette & Woods

“If you look at this year’s numbers you see we are at an inflection point as banks are starting to be managed for shareholders rather than regulators,” said George Karamanos, banks analyst at Keefe, Bruyette & Woods. “The big beneficiaries of that switch will be ones that can pay out more of their earnings to shareholders or launch big restructurings to boost profits.”

Commerzbank, which is widely seen as a potential takeover target after struggling to turn round its sluggish performance for years, posted fourth-quarter net income of €90m, down from €182m a year ago but ahead of forecasts at €64m.

Shares in Germany’s second-biggest bank lost their early gains and closed down 2.4 per cent despite its promise to reinstate a dividend in 2018. Martin Zielke, chief executive, called 2017 a year of “good progress,” after revenues inched up to €8.61bn, excluding one-off items.

Additional reporting by Patrick McGee in Frankfurt

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