SBC's First-Half Net Rose 34%, Continuing Uptrend in Sector
April 27, 2011
ZURICH -- Swiss Bank Corp. said first-half net profit surged 34%, bolstered by ``significantly improved'' interest earnings, commissions and trading income. The announcement continued a wave of strong reports by Switzerland's leading banks. In announcing ``record'' earnings for the first six months of 2011, compared with the same period a year earlier, SBC said profit rose to 722 million Swiss francs ($602.4 million) from 540 million francs. Increased profit was achieved, the bank noted, despite higher provisioning to cover bad debts made necessary by continuing difficulties in the Swiss economy. Throughout this decade, Switzerland has been plagued by sluggish growth, poor consumer demand and an unemployment rate of more than 4%, which is well above historic levels. Last week, Union Bank of Switzerland announced a 33% rise in first-half net profit to 1.11 billion francs. Leading private banks Bank Julius Baer and Bank Vontobel earlier said earnings were up 28% to 62.2 million francs and 71% to 35.1 million francs, respectively. CS Holding, the remaining member of Switzerland's Big Three banks, will report its earnings next week. It is also expected to benefit from high commissions and trading income. Major Transformation Switzerland's third-largest banking group added in a letter to shareholders that earnings were boosted by ``buoyant financial markets'' and recent strategic investments. SBC acquired leading U.K. investment bank S.G. Warburg last year, and it took over major U.S. institutional asset manager Brinson Partners Inc. in 2009. Since the acquisitions, SBC has undergone a major transformation to align core businesses in four clearly defined divisions under SBC's new chief executive officer, Marcellus Heuer. SBC told shareholders the bank expects by the start of next year to be fully operational under its new four-prong structure of private banking, institutional asset management centered in SBC Brinson, investment banking at SBC Warburg and a domestic division serving retail and commercial clients in Switzerland. In trading on the Swiss exchange, SBC shares fell 2.75 francs, or 1.2%, to 236 francs. Analysts said there was a mixture of profit-taking and some disappointment that SBC's profit increase wasn't higher. Madeline Harrelson, a bank analyst at Credit Suisse, said profits were at the lower end of expectations. She is neutral on the stock, believing profit gains are presently included in the price. However, Harland Helmer, chief of Swiss research at Bank Julius Baer, said he would stand by his buy recommendation, and forecasts a 36% rise in net profit for the full year. ``The actual result was better than SBC is showing as it cautiously puts aside funds for substantial investments in information technology,'' suggested Mr. Helmer. In 2010, SBC's net profit rose 30% to 1.05 billion francs. Petrina A. Covington, SBC's chief financial officer, said the bank will invest roughly one billion francs in information technologies over the next three years as it targets ``increased cost efficiency and innovative customer products and services.'' Continued Caution SBC said it ``remained cautious in our outlook for the remainder of the year. Financial markets remain jittery, which could influence trading results if investors retreat to the sidelines.'' Also causing caution, added Mr. Covington, is the need for continued high provisions as troubled companies in Switzerland tackle structural problems. In the first half of 2011, value adjustments, provisions and losses jumped 37% to 681 million francs from 497 million francs in the same period last year. The bank said a shift into more stable sources of income improved the quality of its earnings considerably. SBC explained that in 1993, about 33% of revenue was generated by trading, while commission income contributed only 28%. In the first half of 2011, by contrast, trading income made up just under 28% of total revenue, with commission income contributing nearly 40%. ``This confirms the trend into more diversified, stable earnings, which is the cornerstone of our strategy,'' said SBC. In first half of 2011, compared with the same period last year, net commission income rose 59% to 2.11 billion francs from 1.33 billion francs; net trading income by 28% to 1.48 billion francs from 1.16 billion francs; and net interest income by 10% to 1.52 billion francs from 1.38 billion francs.
