UBS AG's $1.5 billion penalty for trying to rig interbank rates brings total fines for Europe's largest banks to at least $6.1 billion, or about a quarter of their estimated profit this year.
Regulators have announced at least 13 fines of more than $5 million for nine of Europe's biggest lenders, according to data compiled by Bloomberg. Those banks may report $24 billion in combined net income for 2012, with UBS among three lenders projected to post a full-year loss, according to analyst estimates compiled by Bloomberg.
European banks' attempts to cut costs and improve profitability to meet tougher regulatory requirements have been hurt by probes ranging from allegations of global interbank rate rigging to giving terrorists access to the U.S. financial system. UBS, which on Nov. 26 was fined 29.7 million pounds ($48 million) by the U.K. following an unauthorized-trading loss of $2.3 billion last year, said today it expects a fourth-quarter net loss of as much as 2.5 billion francs ($2.7 billion).
“Fines and litigation expenses have jumped this year and will continue to rise,” said Dirk Becker, an analyst at Kepler Capital Markets in Frankfurt with a neutral recommendation on European bank stocks. “The fines will cut profit and reduce the
amount of equity banks have available to set aside to build capital, pay dividends and bonuses.”
Eoin Treacy's view The banking sector has been under a cloud
since the onset of the credit crisis as the excesses of the previous decade
gave way to the realisation that loans cannot simply be handed out to anyone
who wants them. As banks' share prices collapsed the savings of large numbers
of investors were wiped out and sentiment towards the sector declined even further.
The LIBOR scandal is the latest in a long list of crimes that have further sullied
the reputation of the financial sector. It is therefore noteworthy that despite
negative perceptions, the banking sector has moved to a position of outperformance
not only in the USA or Europe but globally.
In North America, the S&P500 Banks Index found support in the region of the 200-day MA and the 150 area from November and is now pulling away from that level. The KBW Regional Banks Index has also found support in the region of the 200-day MA while the S&P 500 Diversified Financial Index broke out to hit new 18-month highs this week. The S&P 500 Financials Index has rallied to test the upper side of its four-year range and a clear downward dynamic would be required to question potential for a successful upward break. The Canadian S&P/TSX Financials Index hit a new 18-month high this week and is rallying towards the psychological 1800 level.
In the Europe, the FTSE-350 Banks Index continues to trend higher while the FTSE-350 Speciality Financials completed a yearlong base this week. The Euro Stoxx Banks Index found support in the region of the 200-day MA from November and a sustained move below that area would be required to question medium-term scope for continued higher to lateral ranging. In line with insurance sectors globally, the Euro Stoxx Insurance Index continues to outperform the banking sector. The Swiss Banking Index has rallied to test the upper side of its more than yearlong range.
In Asia the Bloomberg Asia Pacific Banks Index has held an upward bias since June and has rallied for the last five consecutive weeks to post new 15-month highs. It is approaching the upper side of the more than three-year consolidation and a sustained move below the 200-day MA, currently near 145 would be required to question medium-term scope for additional upside. The Bloomberg Asia Pacific Diversified Financials Index broke out of a more than yearlong range this week.
The Hang Seng Banks Index broke upwards to new 15-month highs this week. The Chinese S&P/Citic 300 Banks Index rallied to break its three-year downtrend last week and the benefit of the doubt can continue to be given to the upside as long as it holds above the 200-day MA. The Topix Banks Index has a rounding characteristic consistent with accumulation and a sustained move below the 200-day MA would be required to question medium-term scope for further upside. The S&P/ASX Financials Index found support in the region of the 200-day MA three weeks ago and a sustained move below the trend mean would be required to check potential for further higher to lateral ranging. The Singapore Financial Index hit a new four and a half year high last week. The Jakarta Finance Index is in a process of mean reversion following an impressive advance. The Bombay Banks Index continues to trend higher. Thai Banks Index hit a new 15-year high this week.
In conclusion the commonality of bullish action in the global banking sector is not only noteworthy but is also a vote of confidence that the sector is recovering from the worst excess of the last decade. The outperformance of the sector is also a bullish consideration when looking at the wider market.