International
Markets: UBS reports plunge in 2011 profit: BP reports profit surge; Santander adds €2.3bn to provisions; Toyota's 9-month profit dips; Glencore to buy Xstrata
By Finfacts Team
Feb 7, 2012 - 10:13 AM

Angela Merkel, German chancellor, and Nicolas Sarkozy, French president, being interviewed on French and German television, at the Élysée Palace, Paris, Feb 06, 2012

UBS, Switzerland's biggest bank, today reported a net profit of 4.2bn Swiss francs (€3.5bn) for 2011, down 44% on the previous year, and the bank said it expects a tough first quarter due to the economic crisis.

In the fourth quarter of 2011, net profit  fell to 393m francs, compared to 1.7bn francs in the same time period in 2010.

CEO Sergio Ermotti, who took over from Oswald Gruebel following the discovery of a $2.3bn loss from rogue trading in September, is shrinking the investment bank as stricter capital requirements and the European sovereign debt crisis hits profitability. UBS announced plans in November to reduce fixed-income businesses and cut risk-weighted assets at the division under Basel III rules almost by half.

Santander, the Spanish banking giant that is the biggest Eurozone bank by market capitalisation, announced today that it would book an extra €2.3bn in provisions against property related loans this year.

A statement said the bank is required to increase its capital by €6.1bn. It booked €3.18bn in provisions booked in late 2011.

British oil giant BP reported today that net profits hit $23.9bn (€18.2bn) in 2011, as it recovered from the US Gulf of Mexico oil spill disaster in 2010.

BP had reported a loss of $4.9bn in 2010.

Glencore International Plc, the world’s largest publicly traded commodities supplier, agreed to buy Xstrata Plc for £39.1bn pounds ($62bn) in the biggest mining takeover.

Glencore, which has 34% of Xstrata, offered 2.8 new shares for each Xstrata share in an agreed all-share “merger of equals,” the companies said today in a statement. Xstrata Chief Executive Officer Mick Davis, 53, will be CEO of the combined group while Glencore CEO Ivan Glasenberg, 55, will be deputy CEO and president.

Toyota reported today that its 9-month net profit fell 57.5% to ¥162bn ($2.12bn), blaming March 2011 earthquake, Thai floods and a strong yen.

The company said operating profit also plunged by 72.3% to ¥117bn in the 9 months to December, with revenue down more than 10% to ¥12.88trnr.

Germany: Real earnings, that is, the price-adjusted gross monthly earnings of full-time employees are expected to have increased by an average 1.0% in Germany in 2011 on the previous year. In comparison, they had increased by 1.5% in 2010 and declined by 0.4% in 2009. Destatis, the federal statistics office reported and according to the results available so far, nominal earnings are expected to have increased by 3.3% in 2011 on the previous year, while consumer prices were up 2.3% in the same period.

Economic View 1: Another deadline missed in Greece; Dermot O'Leary, chief economist of Goodbody comments  -- "Given our discussion of missed deadlines in the ongoing Greek saga yesterday, it should come as no surprise that yet another deadline was missed, with talks between the leaders of the main Opposition parties on planned austerity measures being pushed out to today. As we pointed out in that comment, Greek leaders have little or no choice in the matter, something that euro-area leaders, including Merkel and Sarkozy, highlighted again yesterday. Speaking after a meeting with Merkel, Sarkozy’s statement was pretty clear: “We say to our Greek friends that they must now decide. No funds will be released until these decisions are taken”. Sarkozy is referring to a series of austerity measures that must be introduced before a second aid package is agreed and also indicates that patience has run out.

With hard default potentially only weeks away, Greek EU Commissioner Maria Damanaki yesterday said that contingency plans for Greece to leave the euro were being “openly studied”. She did not refer to who it is being studied by. While one would have hoped that these options were being explored, this is the first time that a policymaker has openly talked about it, given the destabilising effects that it could have.

There are still a lot of questions that remain unanswered in the Greek debacle and many unknowns about the consequences of talks not being finalised successfully. It is an issue that we are sure to be returning to again."

Economic View 2: Reality bites once again for UK retailers; Dermot O'Leary adds - - "After enjoying a healthy Christmas shopping period, it appears that reality bit once again in January for UK retailers. The British Retail Consortium (BRC) Sales Monitor shows that the value of UK same-store retail sales fell by 0.3% yoy in January after growth of 2.2% yoy in December. Total sales, however, were still up 2.1% yoy (4.1% yoy in December), leaving the growth rate over the three months to January at 2.4%.

As was the case throughout 2011, growth is coming from sales of food, where price increases have been the predominant factor. In the three months to January, food sales grew by 4.6% yoy, while non-food sales were up by less than 1%. Stripping out the effects of new store openings, sales were effectively flat on an annual basis overall, but food sales grew by c.2% and non-food sales fell by c.1%.

High inflation was a big drag on UK disposable incomes in 2011, and while inflation remains high, we will see an easing over the coming months as the effects of the VAT hike in particular roll off. However, there are other factors to believe that UK consumer spending trends will remain muted, including a relatively poor labour market outlook and slowing economic growth overall."

Greece negotiations pass another deadline: Conall Mac Coille, chief economist at Davy comments  -- "Negotiations between creditors and the Greek government continued last night, well beyond yesterday's self-imposed 11.00 deadline, and with no agreement apparent this morning. Prime Minister, Lucas Papademos, is scheduled to meet Greek political leaders today to discuss the implementation of cuts worth 1.5% of GDP and whether further measures can be implemented to meet demands by international creditors.

Reports this morning suggest that any new funding agreement will include a ring-fenced account to meet fund future bond payments. Thus, by prioritising debt repayments, the immediate threat of default may be removed and the onus placed on the Greek government rather than international creditors should spending cuts and revenue measures fail to be implemented.

The immediate issue for markets is whether a new funding package will be put in place in time for Greece to meet a €14.5bn bond redemption on March 20th. Yesterday, officials hinted that the real deadline for a new funding package is February 13th, to ensure sufficient time for legal and transactional details to be completed before the bond redemption. However, if agreement is secured beyond February 13th, it is highly likely that European authorities will ensure that the funding is in place to meet the March 20th payment rather than risk a disorderly default by Greece.

In a slow day for macroeconomic data, the market's focus is likely to remain on the negotiations in Greece. That said, this morning's poor British Retail Consortium's figures for like-for-like sales in the retail sector reinforce the view that UK consumer spending is likely to fall back in Q1 following a strong performance in December. Germany's industrial production figures for December, released later today, will most likely confirm that output in the sector contracted in the final quarter, thus reinforcing the view that euro area GDP will decline in the final quarter of 2011. So today's macroeconomic data could reduce some of the optimism in markets on the outlook for growth."

US Markets

On Monday in New York, the Dow fell 17 points or 0.13% to 12 815.

The S&P slid 0.04% and the Nasdaq slipped 0.13%.