* Europe’s banks to report 2012 results in next 5 weeks
* Cost cutting, restructuring plans to overshadow figures
* Top banks to post $105 bln in annual profit, down 5 pct
* Europe bank shares have rallied 50 pct in 8 months
By Steve Slater
LONDON, Jan 29 (Reuters) - Europe’s banks will signal that cost-cutting, restructuring and cheaper funding costs are paving the way for better times when they report annual results in coming weeks.
A near 50-percent rally by European bank stocks .SX7P in the last eight months shows investors are optimistic that firms are taking more drastic action to slash costs and streamline and that the worst effects of euro zone bad debts have passed.
But the gains have not been matched by earnings upgrades and, after years of poor returns due to the sovereign debt crisis, tougher regulations and an aggressive shrinking of loans, banks are coming under pressure to show the potential for core earnings growth.
For investors, the coming results are “about management strategies for 2013 and commentary on the flows into Q1,” said Chirantan Barua, senior banks analyst at Sanford Bernstein in London.
Action taken last year will come too late to help 2012 results and costs related to restructuring may be heavy. Recession has sent bad debts soaring in Spain and other euro zone trouble spots, potentially plunging some banks into the red. [ID:nL6N0AREIS]
Europe’s top 14 banks are expected to report combined 2012 pretax profit of $105 billion, down 5 percent from 2011, according to calculations by Thomson Reuters.
Most attention will be on how banks including Barclays (BARC.L), Deutsche Bank (DBKGn.DE) and UBS UBSN.VX see their future size and shape. Results from the likes of HSBC (HSBA.L) and Royal Bank of Scotland (RBS.L) are also likely to be overshadowed by how restructuring is progressing.
Analysts say a feature of 2013 will be greater differentiation, with more clarity expected on the likely winners and losers in terms of strategic positioning, cost control, funding costs and growth prospects.
New Barclays CEO Antony Jenkins will unveil his strategic plan on Feb. 12, which is expected to include axing about 2,000 jobs and cutting unprofitable lines in investment banking, and trying to limit losses and shrink in mainland Europe.
He is unlikely to be alone. Anaemic growth prospects and tougher capital requirements have prompted banks to take a harder line in the last six months to cut staff and axe business lines that are too small to compete or unprofitable.
UBS unveiled a radical move in October to wind down its fixed-income business and cut 10,000 jobs. Deutsche Bank followed with a plan to go on a crash diet, and the focus with their results will be on how those plans are evolving.
But restructuring comes at a cost. Deutsche Bank said its overhaul would cost 4 billion euros and would “significantly” hit fourth-quarter profits. [ID:nL5E8ND8R4]
Deutsche’s capital strength remains under scrutiny, as analysts say it has a far thinner cushion than rivals, which could be eroded further if it is hit by fines.
“An improving macro backdrop should in theory alleviate capital concerns and help fourth and first-quarter performance, but this is overshadowed by ongoing headwinds,” Credit Suisse analysts said on Deutsche Bank this week. “Litigation risk in particular never seems far away.”
Balance sheets across the sector are coming under renewed scrutiny after warnings from regulators that capital may need bolstering in the face of growing fines, hefty bad debts and a stricter stance on how risk weightings are calculated, which could see lenders cut or delay dividends.
Europe’s investment banks are expected to show a mixed performance in the fourth quarter - income should be up on a weak year-ago period, but down from the third quarter - with equity capital markets strong, equities and advisory revenue steady, but commodities income weak.
Investment bank core fourth-quarter revenues will be down 14 percent from the third quarter, but up 13 percent from a year before, Credit Suisse forecast. On a relative basis, it sees Barclays and Deutsche performing strongest and UBS weakest. EARNINGS CALENDAR: BANK EARNINGS DATE Nordea (NDA.ST) Jan. 30 Deutsche Bank Jan. 31 Santander (SAN.MC) Jan. 31 BBVA (BBVA.MC) Feb. 1 Caixabank (CABK.MC) Feb. 1 UBS Feb. 5 Credit Suisse CSGN.VX Feb. 7 Barclays Feb. 12 Societe Generale (SOGN.PA) Feb. 13 BNP Paribas (BNPP.PA) Feb. 14 Commerzbank (CBKG.DE) Feb. 15 Credit Agricole (CAGR.PA) Feb. 20 RBS Feb. 28 Lloyds (LLOY.L) March 1 HSBC March 4 Intesa Sanpaolo (ISP.MI) March 5 Standard Chartered (STAN.L) March 5 UniCredit (CRDI.MI) March 15
(Additional reporting by Edward Taylor in Frankfurt; Editing by Tom Pfeiffer)
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