The scars of Greece's debt crisis were laid bare in heavy losses from a string of European banks on Thursday, and bosses warned the region's precarious finances would continue to threaten economic growth and earnings.
From France to Germany, Britain to Belgium, four of the region's biggest banks lined up to reveal they lost more than 8 billion euros (6.8 million pounds) last year from their Greek bonds holdings.
We are in the worst economic crisis since 1929, Credit Agricole chief executive Jean-Paul Chifflet said.
Credit Agricole reported a record quarterly net loss of 3.07 billion euros, performing worse than expected from the cost of shrinking its balance sheet and after a 220 million euro charge on its Greek debt. For 2011 as a whole, the bank took a hit of 1.3 billion euros on its Greek debt.
We think 2012 is going to still be a tense period, Chifflet said, adding: We're hoping that our results will be largely better than in 2011.
Europe's banks have already written down billions of euros from losses on Greek government bonds and loans, and a deal agreed this week with its creditors will inflict losses of 74 percent on bondholders.
We can't say that the writedowns are over, said Franklin Pichard, director at Barclays France. Even if some can say that the worst is over, we are only at a new stage in terms of provisioning and not necessarily at the end.
That is because, despite the bond swap deal, bondholders could suffer further hits if Greece's economy fails to recover.
Britain's Royal Bank of Scotland has marked its Greek bonds at a 79 percent loss - or 1.1 billion pounds - for 2011. The state-owned bank posted a fourth quarter loss of nearly 2 billion pounds on Thursday.
Markets were nevertheless pleased at RBS's efforts to turn itself around. Its shares climbed 3.2 percent by 3:50 p.m. British time compared with a 4.8 percent fall for Credit Agricole and a 6.7 percent loss for Commerzbank. The STOXX Europe 600 bank index was down 1 percent.
Problems in Europe's banking sector are far wider than Greece.
We have reduced the balance sheet of RBS by over 700 billion pounds of assets. That is roughly twice the size of the entire national debt of Greece, said RBS boss Stephen Hester.
The region's banks are still repairing the damage of the financial crisis and shrinking their assets. They must also find 115 billion euros by the middle of this year to shore up their balance sheets against future shocks. But any weakening in the economy will hit earnings and make that harder to achieve.
Germany's Commerzbank, whose fourth-quarter earnings were spoiled by a 942 million euro hit on Greek sovereign debt and on interest rate derivatives used to hedge it, needs to find 5.3 billion euros to meet the stringent new capital requirements set by Europe's banking regulator. For the whole of 2011, it lost over 2 billion euros on its Greek bonds.
Commerzbank said it could reduce some of its shortfall by shedding risky assets, though the debt crisis still had the potential to disrupt earnings.
The high degree of uncertainty associated with the European sovereign debt crisis will ... continue to pose challenges for us, Chief Executive Martin Blessing said.
Commerzbank has prepared an emergency plan in case of a Greek default and a break-up of the euro zone, and while Blessing said he did not expect such a break-up, cautioned: It would be unwise to assume there is a 100 percent likelihood the euro zone will prevail.
The bank had little option but to take part in the Greek debt swap deal, he said: The voluntariness (of the Greek debt swap) is about as voluntary as a confession at a Spanish inquisition trial.
STILL ROOM FOR A BONUS
European governments are hoping to avoid more state bailouts to prop up the banking sector, and to limit the fallout should any bank collapse.
Bailed out Franco-Belgian bank Dexia warned on Thursday it risked going out of business. It suffered a 2011 net loss of 11.6 billion euros, hit by its break-up and exposure to Greek debt and other toxic assets such as U.S. mortgage-backed securities.
Dexia, which accepted a state-led break-up and the nationalisation of its Belgian banking arm in October and is now little more than a holding of bonds in run off, booked a 3.4 billion euro loss on its holding of Greek sovereign bonds.
French investment bank Natixis, rescued from near-collapse during the 2008 financial crisis by a government-backed merger of its retail cooperative parents, reported a milder-than-expected 32 percent decline in quarterly profits.
Despite the weak results, banks still found room for bonuses.
RBS, 82 percent owned by the British government, paid out almost 1 billion pounds in bonuses to staff in 2011. Credit Agricole said it would cut trader bonuses by 20 percent.
RBS boss Hester said the row in Britain over pay at the bank was damaging. Payouts at RBS have been a sore point for many Britons, who remain angered by the fact bankers have continued to pay themselves large rewards while elsewhere thousands lose their jobs as the global economy weakens.
The noise around RBS is damaging to the prospect of achieving the goals everyone needs of it, Hester told reporters. So far in the last three years we have overcome that noise and we will try to keep doing that, but no-one should be under any illusions that you can't have your cake and eat it.
(Writing by Jodie Ginsberg; Additional reporting by Sudip Kar-Gupta in London, Matthieu Protard and Christian Plumb in Paris, Arno Schuetze, Edward taylor and Andreas Kroner in Frankfurt; Editing by Will Waterman and Mark Potter)