Two European banks on Monday stepped up efforts to reduce their reliance on state funding, but Bank of America showed that the sector's troubles continue by reporting a big increase in bad loans. Switzerland's UBS AG agreed to sell its Brazilian business for about $2.5 billion while Allied Irish Banks pledged to raise $2 billion possibly through disposals.
-- UBS sells Pactual for $2.5bn for capital boost
-- Allied Irish Banks to raise $2bn, maybe by disposals
-- Bank of America shares down almost 8 percent pre-trade
-- BofA Q1 profit more than doubles, but troubled loans rise
-- RBS, ING, Lloyds, others could also sell assets
Recent asset sales by Britain's Barclays and Royal Bank of Scotland showed a reluctance to sell assets at low prices may have shifted, with banks acknowledging that "self-help" is a preferable option to taxpayer cash and selling non-core assets may be the best route to take. UBS said on Monday it was selling Brazilian arm Banco Pactual back to its original owners just three years after buying it. It will make a small loss, but lift its tier 1 capital ratio by about 0.6 percentage points.
UBS surprised investors when its capital ratio fell to 10 percent from 11 percent in just three months, at a time when all lenders are being encouraged to build up a bigger capital cushion to prepare for rising bad debts."We consider this opera tion neutral as it is attacking the most urgent problem (low tier 1 ratio) but on the other hand a leading position in an important market has to be given up," said Georg Kanders, analyst at WestLB.
That dilemma faces many banks. Dozens of lenders in Europe and the United States have been shored up with rescue funds from governments, but many are keen to limit their reliance on the state and selling profitable units is the most realistic alternative.
Barclays this month sold its fast-growing iShares asset management business for $4.4 billion to bring in a net gain of over $2 billion. RBS last week sold half of a Spanish insurance joint venture for $560 million as the part-nationalised bank pulls back to its core markets and cuts risk.
RBS is also set to sell assets in Asia, and rivals including Lloyds Banking Group and ING are expected to sell non-core businesses, bankers reckon. UBS, one of the European banks hit hardest by the credit crisis, said its Brazilian sale was part of its strategy to reduce its risk profile and strengthen its balance sheet.
By 1130 GMT UBS shares were up 0.6 percent at 14.06 Swiss francs, outperforming a 2.3 percent fall by the DJ Stoxx European bank sector, which has surged over 80 percent since early March. The index showed a muted reaction to Bank of America's results, released before Wall Street's open, which showed first-quarter profit more than doubled as higher revenue from its take-over of Merrill Lynch helped offset a surge in credit losses.
AIB ASSET SALES?Bank of America's profit jump followed better-than-expected results last week from Goldman Sachs, J.P. Morgan Chase and Citigroup. But the company disappointed investors by reporting a big increase in troubled loans, with shares falling 7.7 percent in pre-market trading.
US President Barack Obama warned of more pain ahead and European Central Bank chief Jean-Claude Trichet said it was dangerous to read too much into recent data suggesting signs of life in major economies. Bank of America's results benefited from one-off gains, and its credit quality deteriorated as the economy weakened, housing prices fell and unemployment rose.
The bank set aside $13.38 billion for credit losses, up from the fourth quarter's $8.54 billion. Allied Irish Banks, Ireland's largest bank by market value, said it plans to raise 1.5 billion euros of core tier 1 capital by the end of this year to supplement a 3.5 billion euro state injection.
It said the extra capital could come from the sale of assets, in a move seen by analysts as preventing a slide towards nationalisation. AIB shares jumped 13 percent. The Irish government took control of rival Anglo Irish Banks in January, but the finance minister said on Monday there was no intention to nationalise either of Ireland's two top lenders.
Bank of Ireland does not need capital beyond what it has already received, he said in response to the news of Allied Irish Banks' plans to raise funds. Also on Monday Norway's largest bank DnB NOR said it might tap state financing to help it reach its core capital ratio target but only if the terms were attractive and existing shareholders not penalised.
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