Investment banking slowdown to hit European lenders

Mon Oct 28, 2013 8:04pm EDT
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By Matt Scuffham and Steve Slater

LONDON (Reuters) - Grim investment bank revenues, a mixed economic backdrop and increasing regulatory and legal concerns are set to weigh on results from three of Europe's biggest banks on Tuesday.

But Britain's biggest domestic lender Lloyds Banking Group (LLOY.L: Quote) will buck the trend by reporting a sharp rise in third-quarter profit, benefiting from the improving health of the UK economy.

European banks are set to echo the grim performance shown by Wall Street's big banks in fixed income, where revenues - which account for about half of total investment bank income - were down about 15 percent on average from a year ago.

Banks in Europe could fare even worse, analysts said, a downturn that could intensify scrutiny on how far Deutsche Bank (DBKGn.DE: Quote) and UBS UBS.VX are shrinking and realigning their investment banking arms.

Deutsche Bank is expected to say its third-quarter pretax profit fell 43 percent to 642 million euros ($886 million), a Reuters poll showed.

The Frankfurt-based lender warned investors in September that investment banking revenue would be significantly lower in the third-quarter, blaming a slowdown in sales and trading of debt products. It normally derives about 55 percent of its investment bank revenue from fixed income, currencies and commodities.

Deutsche has also warned it will have to set aside more money to deal with litigation. Unlike rivals Barclays (BARC.L: Quote) and UBS, it has not yet reached a settlement over allegations it was involved in a scam to manipulate global benchmark inter-bank lending rates. <ID: nL5N0IF31K>

UBS is seen swinging to a third-quarter net profit of 537 million Swiss francs ($600.6 million), a Reuters poll showed, from a year-ago loss of more than 2.1 billion that reflected a 3.1 billion franc restructuring charge, as well as 863 million francs in charges on the value of its own debt.   Continued...

Logos of Deutsche Bank AG are seen in Tokyo September 9, 2013. REUTERS/Toru Hanai