UBS Surges 10%, Banks in Europe Rise

Arthi Gupta
27 Jul, 2010
New York City

European stocks surged after upbeat earnings from UBS and Deutsche Bank and watered down agreement at Basel Committee. German consumer confidence index gained. SAP AG reported quarterly net surged 15%. Euro-zone private sector credit growth improves and M3 money supply rises in June.

[R]4:00 PM Frankfurt – European stocks surged after upbeat earnings from UBS and Deutsche Bank and watered down agreement at Basel Committee. German consumer confidence index gained. SAP AG reported quarterly net surged 15%. Euro-zone private sector credit growth improves and M3 money supply rises in June.[/R]

U.S. stocks gain and Asian markets trade sideways. The Basel Committee finalized capital and liquidity reform only after watering down stringent proposals.

In Paris CAC 40 Index increased 58.22 or 1.60% to close at 3,694.40 and in Frankfurt DAX Index edged higher 52.63 or 0.85% to close at 6246.84.

UBS AG, the Swiss banking giant reported a second quarter profit of Sfr2.01 billion or Sfr0.52 per diluted share compared to net loss of Sfr1.40 billion or Sfr0.39 per share a year ago.

The bank stated the results were helped by strong performance at its investment banking and debt trading business. At the same time, the company noted that withdrawals from its wealth management business slowed.

Deutsche Bank AG, the German financial services provider said second quarter net interest income rose 44% to €3.98 billion from €2.78 billion a year ago. Net profit for the quarter rose 6.4% to €1.16 billion or €1.75 per diluted share compared to net profit of €1.09 billion or €1.64 per share a year ago.

The rise in profit was helped by a sharp decline in provision for credit losses and strong revenue growth in its trading and asset management divisions.

A committee of global central bankers and regulators came to an agreement on Monday over a series of new rules to improve resilience during future financial shocks.

The Basel Committee said the new measures, including a mandatory capital buffer for banks, must be implemented over a period of five years from 2013 to 2018.

Those measures include increasing the quality and quantity of capital at banks, strengthening liquidity standards, discouraging excessive risk taking, and reducing procyclicality.

However, the committee watered down some of the draft proposals after Germany, France and Japan lobbied. The committee noted in its statement that stricter rules could have ""potentially adverse consequences for particular business models and provisioning practices.""

""Many banks have already made substantial strides in strengthening their capital and liquidity base. The phase-in arrangements will enable the banking sector to meet the new standards through reasonable earnings retention and capital raising,"" said Nout Wellink, Chairman of the Basel Committee.

Euro-zone private sector credit rose modestly on an annual basis in June. Loans to the private sector rose 0.3% year-on-year in June compared to a 0.2% increase in May, according to a report from the European Central Bank released today.

Loans to non-financial corporations dipped 1.9% in June versus a 2.1% fall in May but growth in loans to households rose to 2.8% in June from 2.6% in May.

Euro-zone M3 money supply rose 0.2% annually in June following a revised 0.1% decline in May, according to data released by the European Central Bank today. In the three months to June, M3 money supply was flat compared to the same period a year ago.

German consumer climate is set to improve in August, as employment prospects brightened, according to results of a key survey. The consumer confidence index edged higher to 3.9 for August from a revised 3.6 in July, a monthly survey from GfK Group showed.

The German Economy Minister Rainer Bruederle said today consumers'' intention to buy and consumption are expected to grow this year, contributing positively to overall economic development.

The German economic upswing is not yet self-sustaining but export growth will reach its peak this year, Anton Boerner, Head of the BGA wholesale and export federation told the German daily Bild in an interview published today.

He further noted a lower euro exchange rate is beneficial for exports but makes goods more expensive. Boerner felt additional tax revenues should be utilized for boosting investment in the economy in sectors like construction.

Swedish producer prices increased in June from the previous month, according to a report by the Statistics Sweden released today. The producer price index rose 1.6% year-on-year in June compared to a 0.5% fall in May. On a monthly basis, the PPI rose 1.3% in June.

The import price index grew 1.6% annually in June compared to a 1.6% fall in the previous month. The export price index rose to 0.9% in June from a 2.9% fall in May.

BP Plc announced today that Tony Hayward is to step down as group chief executive with effect from October 1, 2010. He will be succeeded by fellow executive director Robert Dudley.

The company further plans to sell assets worth $30 billion over the next 18 months, primarily in the upstream business. This will leave the company with a smaller but higher quality Exploration & Production business.

BP Plc reported it is taking a charge of $32.2 billion in the second quarter to reflect the impact of the Gulf of Mexico oil spill, including costs to date of $2.9 billion for the response and a charge of $29.3 billion for future costs, including the funding of the $20 billion escrow fund.

Gainers & Losers

Banks in Germany and France traded higher after positive results from the UBS AG and Deutsche Bank.

UBS AG surged 10.54% to Sfr17.28 after it reported third quarterly profit in a row. The bank also said that strong investment banking and trading profit helped the results and asset out flows slowed in the quarter.

Nearly Sfr 244 billion has left the UBS’s asset management business in the two years to the end of the first quarter in March. In the latest quarter the asset outflows declined to Sfr 8.1 billion from Sfr 15.4 billion.

Deutsche Bank soared 4.8% to €52.82 after the German banking giant reported larger than expected profit and indicated positive outlook.

Credit Agricole and BNP Paribas gained after Basel Committee softened its capital requirements standards.

SAP AG fell 2.2% to €36.43 after it reported second quarter net surged to 491 million or 41 cents from 426 million or 36 cents a share.