Europe's banks warn of investment cuts, falling income as virus hits

By Lawrence White, Iain Withers and Maya Nikolaeva

LONDON/PARIS (Reuters) – Some of Europe’s biggest banks have warned the coronavirus will hit their already under-pressure earnings, as a lockdown in Britain and across parts of continental Europe will slow economic activity, eat into fee income and put corporate borrowers at risk.

Societe Generale (PA:) Chief Executive Frederic Oudea said on Tuesday it was too early to say what would be the impact of the virus on the bank’s earnings, but that mortgage lending will suffer.

“The production on certain loans will not be very dynamic. Let’s be realistic, I don’t think that French citizens will particularly go to branches to borrow on the mortgage”, Oudea said in a presentation at the Morgan Stanley (NYSE:) European Financials conference in London.

Britain’s Lloyds Banking Group (L:) will delay part of a 3 billion pound ($3.62 billion) technology investment program in response to the epidemic, Chief Executive Antonio Horta-Osorio told the same conference.

“Now we have a huge external shock, which will provide a delay,” he told the audience of investors and analysts at the conference.

Lloyds has already spent 2 billion pounds of the plan but could delay deploying the remaining third.

Prime Minister Boris Johnson on Monday shut down social life in Britain and ordered the most vulnerable to isolate for 12 weeks. The moves, which follow similar actions in Italy and France, are likely to hit banks from multiple angles.

A decline in consumer spending will lower the bank’s fee income, Horta-Osorio said, and Lloyds will likely sell fewer mortgages as homebuyers are prevented from viewing potential properties by the social isolation measures.

Spain’s Santander (MC:), the euro zone’s second biggest bank by market value, offered a more upbeat outlook at the same conference.

The bank’s chairman Ana Botin said a “v-shaped” scenario of sharp economic decline followed by quick recovery would cut the bank’s profits by only 5% this year, excluding any mitigating actions.

With the European banking stock index () trading down 40% year-to-date, banks urged investors not to draw comparisons with the 2008 crisis when lenders were the epicenter, saying they have boosted capital and can help the economy recover.

France’s biggest bank BNP Paribas (PA:) told investors that its capital has more than doubled since 2008 and that it had 309 billion euros ($339.28 billion)in immediately available liquidity reserves.

Royal Bank of Scotland (L:) Chief Executive Alison Rose said the Bank of England’s recent 50 basis point rate cut would likely cost it some 340 million pounds in revenues.

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