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Good H1 performance for European banks

After HSBC and BNP Paribas published positive reports showing the volume of toxic loans shrank in their portfolios, other European banks and financial services companies are returning to profit despite pessimistic forecasts. Bad loans receded more than expected in the first half of 2010.

Societe Generale's profit was almost 50% higher than expected, Britain's Lloyds posted a 5% rise in net income. “There is fragility in the global economy and nervousness in financial markets,” StanChart Chairman John Peace told Reuters adding that UK banks in particular were disadvantaged by rules on taxes, remuneration and regulation.

“The results tell you that emerging markets, like China, India and Brazil, are the markets to be (in) for generating good businesses,” said Ted Huang, manager of the Pinebridge Asia High Yield Fund in Taipei, after StanChart's results. For investors, the sector is looking more attractive after it emerged from the July 23 results of pan-European stress tests mostly unscathed. This week's earnings look set to give banks another boost. European banking shares have risen nearly 9% since the stress test results were released, against a rise of about 2.5% for European shares more broadly and 8% for US banking shares.

However, other European banks such as the Italian Unicredit and Germany’s Postbank lost money in the first half. Postbank, the largest retail bank by clients said it expects earnings in the second half to lag the first half. According to Reuters, the bank released the profitability target on the uncertainty caused by looming bank regulations, saying it could only give reliable targets once decisions had been made on potential bank taxes and core capital requirements. (BBJ)