Daily Agenda: Earnings at European Banks a Mixed Bag

Shell announces job and budget cuts; U.S. GDP up during second quarter; Samsung earnings hit on back of smartphone supply shortages.


Chris Ratcliffe

Several major European financial institutions reported earnings today, lending insight into the health of lenders in the region. Royal Bank of Scotland announced a £153 million ($239.1 million) loss for the first six months of 2015. Restructuring costs and money earmarked for litigation and client compensation weighed on the bank’s balance sheets. Separately, RBS cut its corporate lending in China during the first half of the year by £1.2 billion to £2.4 billion as conditions in the world’s second-largest economy continue to deteriorate. On a positive note, in Spain, Santander announced a 24 percent year-over-year increase in first-half profits aided by costs reductions and declining bad loan ratios. The news was also positive in Germany where Deutsche Bank, now Europe’s largest investment bank by some measures, reported a massive increase in trading revenue that more than offset litigation provisions. Following the sacking of now-former CEO Anshu Jain earlier this month, significant cuts in capital-markets business lines had been anticipated but some analysts today noted that the big upswing in profits may make this difficult to justify to shareholders. Over in France, BNP Paribas is considering a reorganization of its investment banking divisions in an effort to curb costs as new regulations decrease profitability in many trading business.

Shell slashes jobs and balance sheet. Anglo-Dutch energy company Royal Dutch Shell today joined other oil producers by announcing sweeping budgetary cuts. Shell plans to reduce staff head count by as many as 6,500 positions and selling billions of dollars worth of assets. In a stark break from commentary from the energy giant’s senior management during the first quarter of the year, today’s announcement concluded that oil prices could remain depressed for a prolonged period.

Late-day sell-off for Chinese equities. After a relatively calm trading session, Chinese equities fell sharply during the final hour of trading today, with the Shanghai Composite index down 2.2 percent on the close. Separately, Chinese regulators revealed that the two largest shareholders of AVIC Heibao Co., a publicly listed branch of state-owned aerospace manufacturer Aviation Industry Corp. of China, are under investigation for liquidating shares inappropriately.

Rate hike in Brazil. Today the Banco Central do Brasil increased its benchmark lending rate to 14.25 percent. The move was largely anticipated by markets as inflation has increased in recent months and the real, the nation’s currency, has slumped against those of major trading partners.

Samsung takes earnings hit on smartphone division. Korean giant Samsung Electronics Co. reported a sharp decline in its operating profits during the second quarter of 2015 as smartphone sales suffered from supply shortages. The company reported a $5.9 billion profit for the period regardless.

U.S. GDP rises in second quarter. Initial estimate second-quarter 2015 U.S. GDP data released today by the Commerce Department registered at 2.3 percent, slightly lower than consensus forecasts. Critically, first-quarter GDP was revised to 0.6 percent versus a prior reported contraction of 0.2 percent. Positive growth in retail spending and residential investment were offset by low business investment levels.