Oct 28 - As Deutsche, UBS, Barclays, RBS, Lloyds and other major banks line up line up to deliver Q3 earnings news, investors are on the look-out for a drop in investment banking revenues and provisions for ongoing litigation. David Pollard reports.
Deutsche Bank and a full cast of Europe's other A-list banking giants may steal some of the limelight from the Fed this week ... .. against a dramatic backdrop of asset reviews, ongoing litigation costs - and worries over a major downturn in fixed income revenues. The week started on a cheerier note with better than expected profits from Bankia - the bailed-out Spanish group also seeing signs of an upturn in its interest income. But with last week's news of Credit Suisse's 42 per cent drop in its fixed income business - shortly after US giants Goldman Sachs and Morgan Stanley also announced huge drops in fixed income - investors are fretting over whether similar news might come this week from their major rivals in the same market: Deutsche and Britain's Barclays. Chris Wheeler is the banking analyst at Mediobanca. SOUNDBITE (English): CHRIS WHEELER, BANKING ANALYST, MEDIOBANCA: "My concern about fixed income going forward is that we have plenty of capital and leverage issues to deal with, but nobody's actually been very clear with me on what they think might happen when tapering does start and liquidity starts getting pulled out of the market." The other big question of the week: how big will be the ongoing provisions for the mis-selling and LIBOR scandals - and for outstanding litigation over the sale of those infamous mortgage-backed securities? SOUNDBITE (English): CHRIS WHEELER, BANKING ANALYST, MEDIOBANCA: "Any of you who think that one-off charges for litigation are one-offs are probably wrong, because we're going to have to live with this for some time. And I think if we look at what's going to happen this week, there's probably going to be more customer redress of PPI, swaps in the UK banks, certainly Deutsche Bank we're expecting some quite hefty additional litigation provisions. They have a lot of things to deal with, not least of which, of course, is LIBOR and their settlement with the US mortgage people." In the UK, Barclays and Lloyds will be joined by RBS - issuing its first results since Ross McEwan took over from Stephen Hester as boss - and with the focus very much on whether the bank's toxic assets will be split off into a so-called 'bad bank'. If anything, the UK banking sector is feeling better about itself after the recent, successful sale of a stake in Lloyds. And Bank of England governor Mark Carney's recent speech - saying he's 'open to business' to UK banks - means help could be there when tapering does, finally, happen. SOUNDBITE (English): CHRIS WHEELER, BANKING ANALYST, MEDIOBANCA: "Carney was coming up with the suggestion that 'Look, if if we do see tapering and eventually, obviously, some of this paper coming back on to the market, we are there to provide the liquidity.' So, you know, there will be, obviously, dislocations in the market, but we're there for you." The Fed itself may also cheer the sector this week - on hopes it'll signal tapering isn't on the cards just yet - nor is likely to be for some time.