Rising bad debts and the weak European economy hit the earnings of several top regional banks with loss-making Belgian bank KBC on Thursday forced to secure government support to help it survive. France's biggest retail bank Credit Agricole and emerging Europe's second biggest lender Raiffeisen International of Austria both said first-quarter profit fell over 70 percent as debt provisions rose.
-- Belgian KBC posts 3.6 billion euro Q1 loss
-- French Credit Agricole Q1 down 77 percent
-- Italy's Intesa Sanpaolo Q1 off 39 percent
-- Austria's Raiffeisen International hit by rising bad debts
-- European bank share index extends 3-day retreat
Banking and insurance group KBC posted a 3.6 billion euro ($4.9 billion) first-quarter loss, hit by 4.1 billion of writedowns on its investment portfolio. It asked for government guarantees to cover more potential credit hits. Belgium is one of several European countries to provide support to troubled lenders since the global financial crisis deepened last September, forcing banks to rebuild capital after losing billions of euros on writedowns of risky assets.
Thursday's deal is the third time KBC has sought state help after receiving 5.5 billion euros in two capital injections from the federal and Flemish governments since October. Germany approved a bad bank plan on Wednesday that sought to relieve its lenders of toxic assets and encourage lending, seen as key to getting Europe's largest economy out of recession.
The big worry facing many lenders now is that bad debts on more regular home and corporate loans will rise as the recession deepens across the Continent. But not all news from European banks has been bleak. Italy's biggest retail bank Intesa Sanpaolo SpA posted a 39 percent fall in first-quarter net profit on Thursday, but this was much better than analysts had forecast. Europe's fifth-biggest bank by market value said net income for 2009 was not expected to be much below 2008 levels.
Europe's biggest bank HSBC earlier this week reported first-quarter profits well ahead of last year due in part to record results in its investment bank. Investors in bank stocks have begun to reflect the emerging difference between the big retail banks and their wholesale bank counterparts. "We see the earnings upgrade cycle continuing for banks with material wholesale earnings," Morgan Stanley said in a research note while upgrading Barclays.
The DJ Stoxx European bank index was little changed at 1230 GMT, down 0.2 percent, although on course for a fourth straight daily fall after the index had doubled in the previous two months. Within the index HSBC, Barclays and Credit Suisse were all up while KBC shares had fallen nearly 30 percent, Credit Agricole shares were down 2.2 percent and Raiffeisen International was off 3.6 percent.
"All confidence in the credibility of KBC's management is lost and KBC will have to reimburse the government 10.5 billion euros in the distant future," said Kurt de Baenst, analyst at Fortis Bank. He downgraded the stock to "reduce" from "hold".
Shares in French investment bank Natixis slumped 15 percent after it reported a first-quarter net loss of 1.8 billion euros late on Wednesday as earnings were hit by more asset writedowns. The Belgian government support package for KBC covers a notional 20 billion euros in collateralised debt obligations (CDOs) and counterparty risk to credit insurer MBIA.
KBC and other banks have been hit after MBIA and rival bond insurer Ambac suffered huge losses and could face more losses on policies taken out to cover their credit exposures. A group of about 20 disgruntled banks, including KBC, Citigroup, J.P. Morgan Chase and Barclays sued MBIA late on Wednesday, charging that it illegally restructured operations by moving $5 billion of assets and leaving its insurance unit effectively insolvent.
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