Three top European banks said they were bracing for a tough year after taking body blows from the credit crisis in 2008, as concerns grow over the worsening economic situation in eastern and central Europe. France's Societe Generale eked out a small profit for the fourth quarter, compared with a big loss a year ago when it was hit by a rogue trading scandal, while Dutch bank ING and Germany's Commerzbank reported losses on Wednesday.
The three banks are among many lenders in Europe that have sought billions of euros of state help to rebuild balance sheets battered by the crisis. "There seemed to be a sigh of relief early in that bank results were not as bad as the whisper numbers. But now the realisation has set in on the possible exposure to eastern Europe," a trader said.
Commerzbank shares were up 4.6 percent at 1310 GMT with ING down 7.1 percent while SocGen shares, in a rebound after hitting a 10 year low, were up 3.3 percent, compared with an overall 0.3 percent fall in the DJ Stoxx banking index.
The weakening sentiment toward bank shares comes as central and eastern Europe emerges as especially hard hit by the global financial crisis, prompting a currency and stock sell-off. The European Union voiced its concern on Wednesday over the fall of currencies in the bloc's eastern European members outside the euro zone, and urged their authorities to avoid making statements exacerbating the problem.
France's SocGen said it has put expansion plans for Russia on ice and re-organised its corporate and investment banking activities, while ING said it would aim to preserve capital in 2009 and focus on fewer markets.
SocGen said it booked a 300 million euro ($379.4 million) goodwill impairment on its Russian operations. SocGen owns Russia's Rosbank and a bank executive said the group remained confident about eastern Europe. ING earns about 5 percent or 3.3 billion euros of its operating income from eastern European countries, including Turkey.
SNS analyst Maarten Altena said: "There are worries about eastern Europe, such as mortgages in Poland paid in zlotys while the currency has devalued, leading to more payment troubles. These developments will have a big impact on ING."
Two ratings agencies said on Tuesday the ratings of emerging European banks and their west European bank owners could suffer as recession bites, and the warnings caused a sell-off in European stocks and currencies. The ratings agencies reminded investors of the crucial role a handful of Western banks has in keeping the former Communist bloc afloat after bankrolling its rampant growth in the boom years of 2005 to 2007.
Earlier this month, Swiss banks UBS and Credit Suisse posted fourth-quarter losses of 8 billion and 6 billion Swiss francs ($5.12 billion), respectively, while Britain's Lloyds Banking Group unveiled an 8.5 billion pound ($12.02 billion) loss at its HBOS unit.
SocGen, which missed expectations with a fourth-quarter net profit of 87 million euros, proposed a dividend of 1.2 euros per share - a third higher than last year. It said it entered 2009 with a solid capital position and unveiled a Tier-1 ratio of 8.8 percent.
Commerzbank slid deeper into the red late in 2008 as lending for commercial property projects and trading racked up heavy losses in its 'most difficult year ever'. Germany's second-largest lender unveiled a bumper 2008 loss in its corporates and markets business of 1.7 billion euros and a hike in money set aside for defaults on real estate loans.
Analysts at Keefe, Bruyette & Woods said in a note that it was hard to assess the health of the German bank's balance sheet but the loss was less pronounced than feared. SocGen said it expects challenging conditions throughout 2009. It and rival BNP Paribas, which reports on Thursday, have been relatively less hard-hit by the credit crisis than other banks in Europe as France has not seen a property rout like the ones that have hammered lenders in Britain, Spain and Germany.
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