A deepening recession across Europe is wreaking havoc with banks' profits.

Bankers and analysts say they see little hope for improvement until interest rates fall further and bank lending margins improve.

"It's well understood that banks have been under pressure," says Marc Vienot, chairman of France's Societe Generale.

"Europe is still in a very pessimistic mood, and it's very hard for one country or the other to do something on its own."

|Trying to Limit Losses'

"It's kind of a grin-and-bear-it year, and banks are trying to limit losses, control costs, and look forward to some recovery next year," says Matthew Czepliewicz, a banking analyst with CS First Boston in London.

"There's not a lot positive in general terms, and you're looking at very modest lending, revenue, and asset growth and some improvement in spreads as interest rates decline."

The economic downturn comes as cash-short governments in several European countries are seeking to sell off the stakes they hold in big banks.

The fall in profits as a result of bad real estate and corporate lending is affecting some of Europe's biggest banks.

But with profits falling and provisions for bad corporate and real estate loans rising. it could take a lot longer than planned to privatize the remaining government-owned banks.

Credit Lyonnais, one of the world's biggest banks, with $350 billion of assets, lost $316 million last year after earning $562 million a year earlier.

Barclays First Loss

Banque Nationale de Paris, with $284 billion in assets, earned $380 million last year, down from $515 million a year earlier.

Barclays Bank PLC, Britain's largest commercial bank, with $225 billion of assets, announced a $515 million loss last year, the first in its 97-year history.

Trouble in Sweden

The bank's chairman, Andrew Buxton, said there is little reason to believe that Britain's economy will improve soon.

And banks in Sweden and Finland are facing an unending series of disasters.

Ferruzzi Failure Costly

At the end of June, the Swedish government laid out over $50 million to cover an interest payment missed by Swedbanka, one of the largest banks in Scandinavia. Earlier, it had bailed out and taken over two other banks, Gotabanken and Nordbanken.

The bad news is still coming in.

In June, Italy's Ferruzzi group disclosed it would be unable to meet its obligations to lenders, leaving more than 100 banks, including some of the biggest U.S. and European banks, unable to recover hundreds of millions in loans.

Still, analysts caution against sweeping generalizations.

Big Gain at Natwest

They note that some banks are posting stable or even improved earnings and are holding up rather well, despite the economic slowdown.

For example, National Westminster Bank PLC, Britain's second-biggest, boosted earnings nearly fivefold - from $73.5 million in 1991 to $325.5 million last year.

France's Societe Generale earned nearly $580 million, down only slightly from $591 million a year earlier, and the bank predicts profits will be at or around the same level in 1993.

No Relief in Sight

Meanwhile, German and Spanish banks also performed strongly.

Still, the outlook remains grim, and bankers say any nearterm improvement in profits is unlikely.

Substantially diminished economic activity, low demand for credit, and increased provisions remain the main problems, they add.

"We have very little margin for maneuver," says Mr. Vienot of Societe Generale.

He and others add that, given the current scenario, no improvement in earnings is likely until the middle of next year.

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