Europe’s banks use relaxed EU accounting rules to boost profit

Two of Europe's big banks used newly relaxed EU accounting rules to boost their profits while a top executive said he saw no light at the end of the financial crisis tunnel.
Deutsche Bank AG, the largest bank in Europe's largest economy, and Norway's biggest player DnB NOR, both posted results that were not as poor as the market had expected.
However, both were very cautious on future prospects and they exploited new EU reporting rules that relax the requirement to value assets at current market prices, softening the blow of writedowns.
Deutsche Bank made a pretax profit of 93 mln euros in the third quarter, dodging a loss thanks to the changed accounting rules that allowed it cut writedowns by more than 800 bln euros to 1.2 bln. They would have topped 2 bln euros without the change.
But trading losses were heavy, and Chief Executive Josef Ackermann warned of more of the same to come.
"Conditions in equity and credit markets remain extremely difficult," he said, adding: "We will balance our dividend policy with our commitment to conserving capital strength in a highly uncertain environment."
Deutsche shares are trading at a price/earnings ratio of roughly 2.5 times estimated future earnings, a fraction of HSBC's 7.6 times or the sector average of almost 5.
DnB NOR also reported a smaller-than-expected drop in pretax profits for the third quarter, but warned the financial turmoil was making it more difficult to achieve its 2008 earnings target.
Pretax profits fell to 3.65 bln Norwegian crowns ($539.9 mln) in the three months to the end of September from 4.50 bln crowns a year earlier. Analysts had expected anything between a loss of 290 mln and a profit of 1.81 bln.
The report followed generally weak third-quarter results from rival Nordic banks and insurers which have suffered along with other financial institutions in the global credit crunch.
MORE BAILOUTS
Banks continued to queue up for state aid. In Austria, Erste Group Bank said it will be getting a 2.7 bln euro equity injection from the Austrian government at annual interest of 8 percent, as it posted results in line with estimates.
And Kazakhstan's BTA said it expected the government to inject $2.3 bln into its capital as part of a $5 bln bank bailout package announced earlier this week.
Erste is the first Austrian bank to accept capital from the state's 100 bln euro bank support program and a major lender in emerging Europe. The move will boost its tier 1 capital ratio to more than 10 percent by the end of the year, when it expected the deal to close.
Erste's results showed a 17 percent decline in third-quarter net profit before one-off gains to 225.1 mln euros, as loan loss provisions more than doubled, its trading profit almost evaporated and costs continued to rise.
And in the UK, Lloyds TSB named its management team following the proposed takeover of HBOS, a deal done before the UK government unveiled its support package for the banking system.
The line-up was dominated by names from Lloyd's existing team, with only two out of nine coming from HBOS.
Lloyds stepped in to buy HBOS last month in a government-brokered deal, after its rival was hit by the credit crunch and concerns about its exposure to the UK housing market.