Switzerland's top three banks are expected to report higher first-half earnings, even though provisions for credit risks in a sluggish domestic economy have partly offset soaring profits tied to the financial markets' performance.
Earnings are thought to have risen between 15% and 60% from a year ago, in what analysts said were the most turbulent months in Swiss banking history, featuring CS Holding's failed attempt to merge with Union Bank of Switzerland.
"It's been a good first half, but just how good it was depends on the highly volatile trading income," said Ian McEwen, a banking analyst at Lehman Brothers International. "Provisions tied to the Swiss economy will have remained high, though."
Union Bank, which is about to streamline its Swiss units and is beefing up its investment banking arm under new chief executive Mathis Cabiallavetta, will kick off the earnings season Monday.
The bank, Switzerland's largest, announced a management reorganization in June.
Union is expected to post first-half net earnings of $803 million and $984 million, for a rise of 16% to 44%, according to seven analysts polled by Bloomberg Business News.
Swiss Bank Corp., with a new management organization already in place, will follow Aug. 14. For the first time, the smallest among Switzerland's Big Three banks consolidates its SBC Warburg investment bank, which will boost earnings.
CS Holding, whose chairman, Rainer Gut, shook the Swiss banking establishment with his plan for a merger with Union Bank and later with a sweeping reorganization that includes the loss of 5,000 jobs worldwide, will report at the end of August.
The three banks released upbeat statements for the first quarter, citing rising commission and trading income as well as higher interest income for better results than a year earlier.
The income trend is unlikely to have changed in the second quarter, analysts said. Markets rose and trading volume soared in the first half, particularly in Switzerland. Trading volume on Swiss exchanges rose 50% from a year earlier.
"The markets' performance will have led to high commission and trading income, especially in Switzerland, which is still one of the most important trading centers for the Swiss banks," said Christoph Bieri, a banking analyst at Zuercher Kantonalbank.
Earnings optimism was also reinforced after German banks reported soaring trading income and higher first-half figures.
Deutsche Bank AG said last month that first-half net profit rose 15%. Bayerische Vereinsbank AG's operating earnings rose 20%, and Commerzbank AG's profit rose 47.6%.
Still, soaring trading and commission income won't be enough to persuade some analysts that Swiss banks' shares are a buy.
"There is a wide margin of error, and exceptionally strong trading profits this year would not alone cause us to change ourforecasts for the years to come," said Abigail Leach, an analyst at Merrill Lynch, in a recent report on Swiss banks.