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To: stan_hughes who wrote (183640)	7/25/2002 8:39:06 PM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 436258

HVB sees worst German banking conditions since WW2 (wait some more to come EZ has their OWN CitiBank Morgan Chase) July 25, 2002 08:03 AM ET By Mark Thompson MUNICH, July 25 (Reuters) - HVB Group on Thursday revealed the scale of the crisis shaking German banking as it posted an underlying second quarter loss and said it was unlikely to hit 2002 profit goals as business failures push up risk provisions. The country's second biggest bank, exposed to high profile insolvencies such as media group Kirch and jet maker Fairchild Dornier, expected loan loss provisions to rise 20 percent to 2.5 billion euros ($2.5 billion) this year. As recently as May it had forecast little change. "We are in the midst of one of the most difficult banking years since the end of World War Two," HVB HVMG.DE Chief Executive Albrecht Schmidt said in a statement. "To achieve our full year target of seven to nine percent return on equity, the economy would have to improve, our business pick up and tension on the risk front ease. It is increasingly unlikely that we will see these conditions." Excluding gains of 457 million euros from divestments, the bulk from the sale of Allianz ALVG.DE shares, HVB posted a pre-tax loss of 179 million euros ($177.8 million). Reuters revealed on Tuesday that the loss would be around 200 million. The crisis in German banking has already forced several smaller players to the wall, most notably Bavarian private bank SchmidtBank. Some analysts say that others may be destabilised if equity markets continue to fall. "Real money will not be earned again until 2003," Schmidt told reporters, adding the bank aimed to "streamline everything that has not yet been streamlined" this year. HVB, the first major German bank to post figures for the three months to June 30, provided fresh evidence of the devastating impact slumping stock markets, stalled economic growth and poor credit quality are having on the global sector. BNP Paribas BNPP.PA shocked investors last week with a 13 percent slide in net profit, while Credit Agricole CAGR.PA told Reuters on Wednesday that market weakness could put its full year profit growth target at risk. FIRST EVER LOSS Schmidt said he did not expect the bank would post an operating loss in the third quarter, after plunging into the red for the first time in living memory in the three months to June. Its shares, among the worst performers in the European sector .SX7P which was up 3.9 percent, gained 2.2 percent after a punishing 27 percent drop in the last five days. "There are no reasons why the stock should outperform on a fundamental basis and even if financial markets improve, HVB shares should only reap below average benefit from that," said Stefan Klein, analyst at Commerz Asset Managers. HVB's results highlight the German banking industry's position as one of the least profitable in the developed world. In stark contrast, British mortgage bank HBOS Plc HBOS.L on Thursday posted first half profits at the top end of expectations and promised to beat all targets this year, reaping the benefits of a booming UK housing market. HVB has set a return on equity target -- a measure of profitability which tells shareholders how effectively their money is being used -- of over 12 percent in 2004, a goal analysts believe it will also struggle to hit. "People are really looking at the risk provisions and the return on equity warning," said Sal Oppenheim analyst Metehan Sen. "Investors will be asking themselves what is the upside to the stock and that is looking increasingly unclear." HVB, Europe's biggest mortgage lender and formerly known as HypoVereinsbank, posted a headline pre-tax profit figure of 278 million euros, down from 433 million in the first quarter. Thirteen analysts polled by Reuters had forecast second quarter pre-tax profit on average of 426 million euros. "The development of business in the second quarter was overshadowed by weak capital markets and disappointing growth of the economies in the core markets of Germany, Austria and Poland," the bank said in a statement. LENDING SQUEEZE Net interest income -- the difference between borrowing costs and lending income -- fell 12.7 percent year-on-year to 1.6 billion euros and was down 10.5 percent on the previous quarter, hit by lower lending volumes and slimmer margins. "What is key is that interest income margins have declined. The latter in particular does not bode well for their business," said Klein. With a market capitalisation of just 13 billion euros, the Munich-based bank is now worth little more than half of its book value, according to Reuters data. Like its domestic rivals, Deutsche Bank AG DBKGn.DE , Commerzbank AG CBKG.DE and Dresdner Bank AG ALVG.DE , HVB is suffering from low profitability at its core banking business and is under investor pressure to keep a lid on operating costs. The bank said it has shed 2,800 employees and shut 100 branches so far this year. Schmidt said he would not rule out further job cuts, in addition to the 9,100 announced last year of which two-thirds have been realised. HVB is aiming to cut its cost-income ratio to 58 percent in 2004. It rose to 71.7 percent at the end of June, up from 69.2 percent at the end of March. (Additional reporting by Hannfried von Hindenburg in Frankfurt)