Lehman Sees `Material Hit' to Europe Investment Banks

Discussion in 'Wall St. News' started by Cdntrader, Sep 5, 2007.

  1. Lehman Sees `Material Hit' to Europe Investment Banks (Update1)

    By Charles Penty

    Sept. 5 (Bloomberg) -- European investment banks will take a ``material hit'' to earnings from writedowns associated with securities related to U.S. subprime loans, Lehman Brothers Holdings Inc. analysts said in a report.

    The analysts are predicting post-tax writedowns of at least 15 percent to 25 percent of banks' ``annualized level of first-half 2007 net profit,'' they said in a report. Disclosure by European investment banks about their subprime-related assets, collateralized debt obligations, leveraged lending obligations and asset-backed commercial-paper conduits ``ranges from the bad to the non-existent,'' the analysts wrote.

    Investment-banking divisions may see a 40 percent revenue decline in the second half, compared with the first six months of the year, as income from credit fixed-income trading drops and debt issuance and merger and acquisition activity slows, they said in the report.

    The ``material hit'' to profits won't ``come close'' to threatening the solvency of the banks. ``A final observation is that when the bad news is discounted and greater certainty emerges, the sector can be very quick to recover,'' they said.

    They reduced their recommendation on Credit Suisse Group to ``2-Equal Weight'' with a target price of 90 Swiss francs ($74.28) from ``1-Overweight'' with a 123 Swiss-franc target. They also cut their recommendation on Deutsche Bank AG to ``3-Underweight'' with a 94-euro ($127.7) target price from ``1-Overweight'' with a 146- euro target.

    The analysts kept their recommendation on UBS AG at ``2-Equal Weight,'' reducing the price target to 70 Swiss francs from 91 Swiss francs.

    The following is a table of the other changes to the ratings of European banking stocks following the recent credit-market rout.

    Bank New rating Old rating
    Banco Espirito Santo SA 1-overweight 2-equalweight
    Credit Agricole SA 1-overweight 2-equalweight
    HBOS Plc 1-overweight 3-underweight
    Banco Popolare Scrl 3-underweight 1-overweight
    Banco Comercial
    Portugues SA 3-underweight 2-equalweight
    Bradford & Bingley Plc 3-underweight 1-overweight
    Northern Rock Plc 3-underweight 2-equalweight
    Societe Generale SA 3-underweight 2-equalweight
    Unione di Banche
    Italiane Scpa 3-underweight 1-overweight
  2. This is one good reason to be long USD. Strangely enough, European banks could be hit harder than the US ones by this subprime stuff. Which would explain the ECB having to put more money into the interbank market than the Fed did.
  3. inPeace


    Americans... genius!!! :eek:

  4. What can I say? Our computers are programmed better. At the big commercial banks, anyway. Among the IB's, the only one I have confidence in is Lehman, the authors of this report. The others, not so sure.