Some of the world's leading banks warned Thursday that bad debts would continue to weigh on lenders and signs of recovery were not clear, overshadowing an improvement in underlying earnings and shaking markets.
The caution was not confined to one region, as lenders in Asia and Europe told the same story of bad debt provisions surging as concerns resurfaced over prospects of an economic upturn in the United States.
"This isn't over yet," said Mike Smith, chief executive of Australia and New Zealand Banking Group. "Often it's the aftershocks that do the most damage. We still all need the U.S. economy to kick-start."
All eyes will be on the United States later on Thursday, when the first estimates of third-quarter economic growth are published. Economists estimate the U.S. economy grew for the first time since the second quarter of 2008, though recent data have led them to trim their estimates.
DEUTSCHE, ANZ, KB IN THE MIX
Deutsche Bank reported a profit in all of its divisions, but shares fell 1.3 percent in morning trade as provisions for credit losses more than doubled year-on-year to 544 million euros.
Germany's biggest bank said its provisions related mainly to exposure in Poland and Spain, and forecast they would peak in the United States and Europe within the next six months.
Standard Chartered Plc, based in the UK but focused on Asia, said it was benefiting from growth across its businesses, but warned the economic outlook was still fragile.
ANZ, the smallest of Australia's four big banks, said cash profit surged 79 percent to A$2.43 billion ($2.18 billion) for the half-year ended Sept 30, beating analysts' forecasts. It was bolstered by strong revenue growth from non-interest income in its institutional business.,
Still, bad debt charges in the second half surged 29 percent from a year earlier to A$1.63 billion. CEO Smith warned against complacency, saying although there were positive signs on the economic front in Asia and Australia, there were no real signs of a recovery in the United States.
"The management teams are just being circumspect. The clouds just don't blow away," said Marcus Truman, a portfolio manager at Integrity Investment Management in Sydney.
KB Financial, parent company of South Korea's largest bank, Kookmin, was more bullish, saying bad debt provisions would fall next year as fewer loans would go sour.
KB Financial reported a 69 percent drop in quarterly profit to 173.7 billion won ($145 million), much worse than expected, as it was hit by bad debt charges and a slow margin recovery.
Woori Finance, 73 percent owned by the South Korean government, said net profit more than tripled to 483.8 billion won even as revenue halved.
China's largest bank, ICBC, and Bank of China reported healthy profit increases of about 20 percent, as both benefited from a surge in lending in the first half of the year under Beijing's economic stimulus plan.
ING HANGOVER LIFTS?
One bright spot for the banking sector was a rebound in shares of Dutch bancassurer ING after three days of losses wiped nearly 7 billion euros off of its market capitalisation. ING shares rose more than 7 percent in early trade Thursday, in part on an upgrade from Nomura.
On Monday ING said it struck a restructuring deal with the European Commission that will see its balance sheet reduced by 45 percent from Sept. 2008 levels by the end of 2013.
The scope of that deal raised concerns among investors in other banks that took state aid, notably in Ireland, where a bad-bank scheme is being counted on as the best way to save the local sector from an Iceland-style collapse.
Ireland's finance minister said Thursday that international markets, and not delays in the bad bank plan, were weighing on the shares of local banks.
