European banks, under pressure from regulators to bolster capital, are selling some of their fastest-growing businesses to competitors from outside the region -- at the expense of future profit and economic growth.
Spain’s Banco Santander SA (SAN), Belgium’s KBC Groep NV (KBC) and Germany’s Deutsche Bank AG are accelerating plans to exit profitable operations outside their home markets. Santander, which said in October it needs to plug a 5.2 billion-euro ($6.9 billion) capital gap, sold its Colombian unit last week to Chile’s Corpbanca for $1.16 billion. Deutsche Bank is weighing options including a sale of most of its asset-management unit, while KBC may dispose of businesses in Poland.
Such sales risk hurting long-term profit, just as Europe enters recession, investors say. It’s the unintended consequence of the decision by European regulators to make banks increase core capital to 9 percent by June instead of 2019. Unwilling to raise equity because their share prices are too low, lenders are selling profitable assets because they’re struggling to find buyers willing to pay enough for their troubled loans to avoid a loss that would erode capital. Investors say the sales risk leaving banks focused on a stagnant economy and deprive them of economic growth from outside the region.
“These are the most profitable parts of their business,” said Azad Zangana, European economist at London-based Schroders Plc, the 200-year-old British asset manager, citing Spanish and Portuguese banks selling assets in Latin America. “They’re being forced by regulators to sell them off. You begin to become a less profitable organization. Your business model stops working if you’re being forced to lend only to an economy that’s going through a very deep recession.”
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U.K. Inflation Slows for Second Month, Led by Cost of Food, Transportation
U.K. inflation slowed for a second month in November, held down by food and transport prices as the prospect of another recession weighed on the economy.
Consumer prices rose 4.8 percent from a year earlier compared with a 5 percent gain in October, the Office for National Statistics said today in London. That matched the median estimate of 34 economists in a Bloomberg News survey.
Bank of England officials expect inflation to drop “sharply” toward the 2 percent target next year and have indicated the risks from the euro-area crisis may prompt another increase in stimulus in February. The Organization for Economic Cooperation and Development has said the economy may already be shrinking.
“Moderating inflation is desperately needed to ease the squeeze on consumers’ purchasing power and provide some much- needed help to the struggling economy,” said Howard Archer, an economist at IHS Global Insight in London. “Inflation should continue to retreat markedly as 2012 progresses.”
The pound climbed against the dollar after the report and was trading at $1.5598 as of 9:55 a.m. in London, up 0.1 percent on the day.
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German Investor Confidence Unexpectedly Rises
German investor confidence unexpectedly rose for the first time in 10 months in December, indicating Europe’s largest economy is weathering the region’s debt crisis.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, increased to minus 53.8 from a three-year low of minus 55.2 in November. Economists forecast a drop to minus 55.8, the median of 34 estimates in a Bloomberg News survey shows.
While the debt crisis is threatening to tip the 17-nation euro region into recession, Germany is showing few signs of slowdown. Industrial production rose more than economists forecast in October, manufacturing orders rebounded and unemployment declined in November, pushing the jobless rate to a seasonally adjusted 6.9 percent.
“Things don’t look so bad at company level,” said Thilo Heidrich, an economist at Deutsche Postbank AG in Bonn, who predicted the ZEW index would increase. “The economic situation isn’t as bad as the debt crisis would suggest. We don’t expect a clear or deep recession in Germany, and that’s reflected in this slight improvement in expectations.”
The euro rose to $1.3225 at 12:25 p.m. in Frankfurt from $1.3170 before the ZEW report. ZEW’s gauge of current conditions fell to 26.8 from 34.2 in November.
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Greece’s Budget Deficit Widens to $27.1 Billion in First 11 Months of Year
Greece’s state budget deficit widened 5 percent in the first 11 months of the year, better than a revised target for the period.
The gap, which excludes outlays by state-owned institutions and companies, rose to 20.5 billion euros ($26.5 billion) from 19.5 billion euros a year earlier, according to preliminary figures received by e-mail from the Finance Ministry. The figure came in below a target of 21 billion euros set in the 2012 budget, it said. Final figures are due later this month.
Ordinary budget revenue declined 3.1 percent in the first 11 months as Greece’s recession weighed on tax collection. Spending rose 3 percent, or by 3.7 billion euros, boosted by a 20 percent increase in debt-servicing costs that added 2.6 billion euros to the bill, the Athens-based ministry said.
Prime Minister Lucas Papademos’s 2012 budget, approved on Dec. 7, aims to reduce the fiscal deficit to 5.4 percent of gross domestic product from 9 percent this year. Efforts to trim the shortfall have deepened the recession, now in its fourth year. The Organization for Economic Cooperation and Development expects the economy to contract 6.1 percent this year, more than the 5.5 percent forecast in the government’s budget.
