Writedowns dent more bank profits, markets tough

LONDON (Reuters) - Profits fell at a slew of European banks as they took more writedowns on risky assets and braced for a tough outlook well into next year, but shares in Barclays (BARC.L) and some others rose on optimism they can take advantage of the turmoil.

Britain's Barclays, Germany's Dresdner (ALVG.DE) and Belgian KBC (KBC.BR) unveiled over $5 billion more in asset writedowns on Thursday, and predicted tough conditions would persist but could provide opportunities.

Barclays shares jumped 3.6 percent by 1111 GMT despite its profits being hit by a $4 billion writedown on risky assets and its prediction of challenging markets continuing through 2009. The DJ Stoxx European banking index .SX7P was up 0.6 percent.

The bank's income proved resilient and investors were encouraged that the bank can grab market share as rivals retreat from areas like UK mortgages or U.S. investment banking.

"This is as tough an environment as we have operated in and I have been 25 years in the business ... it's been difficult to manage," said Bob Diamond, president of Barclays and head of its Barclays Capital investment bank arm.

Austria's Raiffeisen International RIBH.VI also said it was well positioned in the downturn. Its second-quarter net profit rose 49 percent as growth continued in the emerging markets of eastern Europe it targets and it held bad debts in check.

But others were less resilient as financial market turmoil continued during the second quarter.

Dresdner swung to a second-quarter 566 million euro operating loss from a 427 million euro profit a year ago, hurt by its investment banking business and 286 million euros in writedowns on investments hit by the credit market crisis.

The grim and uncertain outlook forced Dresdner's owner, insurer Allianz (ALVG.DE), to abandon its profit targets and guidance.

A bigger-than-expected 604 million euro asset writedown by Belgium's KBC (KBC.BR) knocked its quarterly profit 42 percent lower and sent its shares skidding 3.6 percent.

Like Raiffeisen, KBC also reported a rise in its eastern European operations but that was overshadowed by problems in its core market and writedowns.

A year into a global credit crunch, banks have lost over $400 billion from their exposure to risky assets, forcing Barclays and others to raise funds to repair damaged balance sheets and heightening pressure on them to keep capital cushions topped up.

KBC's chief executive, Andre Bergen, said the group had no need to raise new capital, while Barclays said its recent 4.5 billion pound fundraising had left its capital ratios well above its long-term targets.

BARCLAYS CONFIDENT

Barclays, Britain's third biggest bank, which failed to buy Dutch rival ABN AMRO in the world's biggest takeover, said first-half profits fell by a third to 2.75 billion pounds due to its latest writedown.

Its writedown since the start of the credit crisis is 3.6 billion pounds, far less than European rivals Royal Bank of Scotland (RBS.L) and UBS UBS.VX and major U.S. banks like Citigroup (C.N). It said it was comfortable with the level of its markdowns.

Diamond said there were good opportunities for Barclays Capital -- whose first-half profits fell 68 percent to 524 million pounds -- to take market share during difficult conditions, especially in the United States where many rivals have retreated. nWLA7754

"We recognize how difficult the conditions are out there and the need to be cautious and to balance risk and reward, but we're not without focus on opportunities," he said.

Diamond told Reuters in an interview that it was unlikely to make a big investment banking acquisition, following speculation it could pursue Lehman Brothers LEH.N or other hard-hit firms.

In the United States, insurer American International Group Inc (AIG.N) posted its third consecutive quarterly net loss of more than $5 billion on Wednesday as it wrote down bad mortgage-related investments, sending its shares down almost 8 percent.

Denmark's biggest financial group, Danske Bank (DANSKE.CO), was a bright spot. It reported a smaller-than-expected 24 percent fall in first-half net profit on Thursday and repeated its outlook for a fall in its full-year earnings.

The group reported a net profit for the first six months of 2008 of 5.8 billion Danish crowns ($1.21 billion), compared with 7.6 billion in the corresponding months of 2007 and an average of 5.4 billion in a Reuters poll.

Danske shares were up 2.4 percent

While the global sector has been hit by billions of dollars in asset writedowns after the subprime collapse in the United States, Nordic banks have been relatively resilient in recent quarters.

(Editing by Paul Bolding)