Europe's banks bounce back after stress tests

Two of europe's most important banks yesterday underlined the return to health of the Continent's bigger players by posting strong results just days after stress tests suggested that Europe's banking system is in better health than many experts believe.

The figures from UBS and Deutsche Bank came a day after the Basel Committee on Banking Supervision agreed to stagger the implementation of new rules designed to prevent a repeat of the financial crisis over five years – starting on 1 January 2013. The decision is aimed at giving banks a period of grace to support the spluttering economic recovery.

Significantly, Germany will not agree to the global proposals to beef up capital requirements until they take into account what it sees as the needs of its public banking sector. However, officials said it was wrong to conclude from Germany's hesitancy over providing full data for European-wide bank stress tests and over the Basel supervisory talks that the country is now fighting shy of agreeing to tighter global standards.

Last week's stress tests, covering 91 banks across the Continent, gave the sector a clean bill of health but were widely criticised because the "stressed" scenario of a 3 per cent fall in GDP against the European Commission's growth estimates combined with a sovereign debt crisis were seen as insufficiently stretching to truly gauge banks' health. Just seven smaller institutions failed, of which five were Spanish "caja" savings banks, about which there has long been concern.

UBS, the one-time star of Swiss banking that was one of the chief victims of the credit crunch, said it had made a net profit of SwF2bn (£1.2bn) in the second quarter of the year, against analysts' expectations of SwF1.3bn. Significantly, profit at the investment banking unit improved even though revenues fell.

At the same time Deutsche Bank said second-quarter net profit came in at €1.2bn (£1bn), compared with the €1.1bn it made a year ago. The results at Germany's biggest lender were fuelled by lower provisions for bad loans, although revenues at the investment banking division fell. The bank said it had "followed the industry-wide trend of weaker profitability".

The results at UBS bucked the trend of falling earnings at investment banks and the company described the figures as "a good result in volatile market conditions".

"I remain confident in our future and I firmly believe that we have the right strategy in place," said the chief executive, Oswald Grübel, the former boss of bitter rival Credit Suisse, who was appointed to lead a turnaround at UBS which appears to be working.

However, the bank was notably cautious on the future outlook, saying: "Concerns about the sustainability of the global economic recovery may leave markets volatile and with little direction. We believe that this could lead to more subdued client activity."

Deutsche's chief executive, Josef Ackermann, sounded more confident, although he lamented the "increased investor uncertainty and higher market volatility" that weighed down the company's investment bank. He said: "Global economic activity is likely to strengthen."

While Deutsche was criticised over its reluctance to reveal data for the stress tests, it yesterday unveiled a combined €14.8bn of gross exposure to the EU states that are causing concern: Greece, Spain, Portugal, Ireland and Italy. Some €10.4bn was to Italy. Most of the bank's sovereign debt is held for trading.

The figures caused banking shares to rise across Europe as investors hoped for better times.