The international credit crisis has left its deepest marks yet on the European banking system. Two mega-banks, Swiss bank UBS and Germany's Deutsche Bank, announced fresh asset write-downs amounting to billions of euros.
Big banks have been among the hardest hit
Germany's biggest bank announced Tuesday, April 1, that it will write down an estimated 2.5 billion euros ($3.9 billion) in its first quarter. Deutsche Bank blamed bad loans in the housing sector and noted that conditions in international financial markets had become "significantly more challenging" in recent weeks.
The announcement did not come as a complete surprise. Deutsche Bank had warned last week it might miss 2008 earning targets.
Bad news, good timing
UBS is hoping for a sunnier future
But Deutsche Bank's bad news was dwarfed by that of Swiss banking giant UBS, which announced it will write down 12 billion euros for the first three months of 2008.
"Deutsche Bank took advantage of the timing, coming on the heels of UBS so as not to have to rattle the market a second time," said Heino Ruland, analyst at FrankfurtFinanz told Reuters.
With Tuesday's announcement, USB had the dubious distinction of being the bank which has taken the worst hit from the US subprime mortgage crisis.
UBS facing more red ink
UBS Chairman Marcel Ospel, seen by many as the man responsible for leading the bank into disastrous US subprime mortgages, announced his resignation Tuesday.
"I ultimately take responsibility for the bank's situation," Ospel said in a statement.
UBS's new write-downs come on top of $18.4 billion the bank had written down in 2007, bringing the bank's total write-downs to $37.4 billion. USB will turn to its shareholders to raise another 15 billion Swiss francs (9.5 billion euros, $14.8 billion) to shore up its financial base.
The worst is over?
Deutschen Bank's Josef Ackermann in happier times
While UBS finished last year in the red, Deutsche Bank posted a pretax profit of 8.7 billion euros in 2007. Deutsche Bank had hoped to post an 8.4 billion euro profit in 2008, but said that might not happen.
Several public German banks are also among those hit hardest by the subprime crisis, with business lender IKB only surviving with help from the government and public savings banks, and regional bank SachenLB rescued by LBBW.
Yet there's a sense among analysts that the worst might be over, and that optimism could be seen in the European stock market Tuesday. There was a sense that the banks are addressing the problems and a hope that the worst of the announcements might be over, Peter Dixon, an economist at Commerzbank, told Reuters news agency.
"The one saving grace in this is that banks are acting quickly to highlight their exposure," Dixon said. "The quicker the bad news is out in the open, then the quicker we can start to repair the problems."
But some analysts say the banking sector could face further problems and that European banks will face a lot of competition for funds when trying to rebuild their capital.