European Banks Took Huge Loan Loss Reserves In Second Quarter As Pandemic Fears Cut Profits

Three of Europe’s biggest banks took sizable loan loss reserves in the second quarter as the COVID-19 pandemic hurt their businesses.

Deutsche Bank (DB) of Germany, which reported a net loss of $90.3 million, set aside about $892 million to cover possible loan losses. For the first half of the year, the bank logged $1.53 billion in loan-loss charges, compared with $354 million in the first half of 2019.

“In a challenging environment we grew revenues and continued to reduce costs, and we’re fully on track to meet all our targets,” Chief Executive Officer Christian Sewing said. “This enabled us to more than offset higher provision for credit losses and remain profitable while supporting clients through difficult conditions. Our strong capital position not only demonstrates our resilience, but also gives us scope for growth.”

British lender Barclays (BCS) set aside $2.1 billion in loan loss charges in the second quarter, as its net profit plunged 91%.

Barclays set aside $2.73 billion in the first quarter, making the first half total about $4.8 billion.

“We have faced extraordinary economic challenges, principally in the U.K. and U.S.,” CEO Jes Staley said.

The Financial Times reported that Barclays based its loan-loss projections on a 6.6% unemployment rate in the UK this year and an 8.7% shrinkage in the country’s economy.

Staley added: "The reason that we have been able to support the [U.K,] economy as extensively as we have and remain financially resilient is because of our diversified universal banking model.”

Spanish bank Santander (SAN) reported a second-quarter loss of $13.1 billion, including $3.65 in credit losses.

Santander also wrote down the value of its assets by $14.8 billion due of the deteriorating economic outlook in Europe, North America and Latin America.

“The past six months have been among the most challenging in our history,” Ana Botin, the Santander’s executive chairman, said according to the Wall Street Journal. “[But] the foundations of our business remain extremely strong.”