Greek debt crisis dampens European financial sector earnings

Feb 23, 2012, 16:20 GMT

Frankfurt - Leading European financial institutions reported a sharp drop in earnings on Thursday, highlighting the impact of the Greek debt crisis.

Downbeat earnings results from Germany's Commerzbank and insurer Allianz along with Britain's Royal Bank of Scotland (RSB), France's Credit Agricole and Belgium's Dexia came just two days after European finance ministers approved a second bailout for Greece.

Shares in Commerzbank dropped about 5 per cent in early trading, after Germany's second biggest lender said its full-year 2011 profit halved to 638 million euros (849.6 million dollars).

The Frankfurt-based group said writedowns for Greek bond holdings totalled about 700 million euros in the fourth quarter.

Still, some companies expressed cautious optimism that European leaders might have started to come to grips with the long-running debt crisis.

'The first steps to stabilise the eurozone have already been implemented successfully,' said Allianz Chief Executive Officer Michael Diekmann. 'We are confident about our strong business opportunities in 2012,' he said.

The Munich-based group said it's net profit halved last year to 2.55 billion euros from 5.05 billion euros.

This followed the company booking writedowns totalling 1.9 billion euros for its Greek sovereign debt holdings and investments.

Allianz said net profit for the final quarter dropped 57 per cent to 492 million euros from 1.14 billion a year earlier.

Under the bailout terms for Greece, banks are to take a voluntary 53.5-per-cent writedown on their government debt holdings.

This is aimed at cutting Greece's debt from its current level of 160 per cent of gross domestic product (GDP) to 120.5 per cent by 2020.

However, underscoring the battle ahead for Greece, this would still leave the nation's debt level at double the 60 per cent of GDP required for eurozone member states.

In the meantime, the RBS said it incured losses of 1.1 billion pounds (1.7 billion dollars) related to investments in Greek bonds.

The group said it's net loss was 1.99 billion pounds last year, compared with 1.12 billion pounds in 2010.

The British government holds an 82-per-cent stake in RBS, which said its fourth-quarter net loss also rose to 1.8 billion pounds.

Dexia, which emerged as one of the early victims of the crisis that has engulfed Greece over more than two years, said it posted a 11.6-billion-euro loss last year - reversing a 723-million-euro profit in 2010.

The Belgian bank, which was broken up last year at the hight of the eurozone debt crisis, incured losses of 3.61 billion euros from Greek bond holdings.

At the same time, Credit Agricole, which has holdings in banks in Spain, Portugal and Greece, reported a fourth-quarter net loss of 3.07 billlion euros.

Read more about Greece