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EURUSD European Companies Struggle

Posted by: : Shayne HeffernanPosted on: February 19, 2015 EURUSD European Companies Struggle

The European Central Bank said Thursday that its net profit declined in 2014, due to lower interest income and higher operating expenses related to its new role as banking supervisor.

The ECB said in a statement its 2014 bottom-line net profit, after subtracting risk provisions, amounted to 989 million euros, down from 1.44 billion euros a year earlier.

“The decrease was mainly due to low interest income on banknotes; a decrease in net interest income from the Securities Markets Programme (SMP) owing to redemptions; higher operating expenses,” the statement said.

The central bank earns income on the investment of its foreign reserve assets, its own funds portfolio, interest income on its share of the total euro banknotes in circulation, and interest income arising from bond holdings.

Overall, total net interest income fell to 1.536 billion euros in 2014 from 2.005 billion euros in 2013, the ECB said.

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A substantial part of the interest income is made up of earnings from its SMP programme — a controversial scheme for buying up the bonds of countries that are finding it difficult to drum up cash via the financial markets.

But net interest income from the SMP was down at 728 million euros in 2014 from 962 million euros the previous year, as substantial amounts of those bond holdings are paid back.

Interest income on banknotes fell to 126 million euros last year from 406 million euros in 2013.

– Sole banking supervisor –

The ECB said it decided to set aside just 15 million euros in risk provisions, up from 0.4 million euros a year earlier.

These provisions cover foreign exchange rate, interest rate, credit and gold price risks, which are monitored on an ongoing basis, the ECB said.

Staff costs rose to 301 million euros from 241 million euros as staff numbers increased during the course of the year owing to the preparations for the launch of the Single Supervisory Mechanism or SSM.

The ECB took over as the eurozone’s sole banking supervisor in November.

Other administrative expenses — including rent, professional fees and others goods and services — increased to 376 million euros from 287 million euros.

The ECB said it would distribute all of the net profit of 989 million euros to the national central banks of the euro area.

It has already distributed 841 billion euros of the total, with the remaining 148 million euros to be transferred on Friday.

The ECB said its total balance sheet declined slightly at the end of last year, amounting to 2.208 trillion euros as of December 31, compared with 2.273 trillion euros a year earlier.

In a bid to ward off deflation in the 19 countries that share the euro, the ECB has said it aims to expand its balance sheet by around 1.0 trillion euros in order to boost the amount of liquidity in the eurozone financial system.

In order to achieve this, the ECB unveiled a programme of so-called “quantitative easing” or QE in the coming months, under which it plans to buy around 1.14 trillion euros of bonds.

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Shayne Heffernan Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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