Some of Europe’s major global diversified financial services companies have been hit as hard by the global credit crunch as their U.S. counterparts. Switzerland-based UBS AG is an example. Others — Switzerland-based Credit Suisse Group, London-based HSBC Holdings PLC and Paris-based BNP Paribas SA — are having an easier time surviving the crisis.

In the 17 months ended Oct. 31, 2008, UBS made loan-loss provisions and writedowns on securities that totalled $44 billion, according to Bloomberg LP. (All figures are in U.S. dollars unless otherwise noted.) And even though the other players are in better shape, they didn’t make it through this period unscathed. HSBC took $27.4 billion in similar writedowns and provisions in that 17-month period, while Credit Suisse trimmed $9.8 billion and Paribas wrote down $3.4 billion.

These latter three, however, are expected to emerge from the crisis bigger and better, taking advantage of the crisis to increase market share. For UBS’s part, it will survive, says Tim Johal, a portfolio manager with I.G. Investment Management Ltd. in Winnipeg, but it will probably have to change its business model.

Here’s a look at the four companies in greater detail:

> BNP Paribas Sa. Paribas is one of the top 10 global banks, operating throughout Europe, the U.S. and in emerging markets — primarily Africa and the Middle East.

Paribas also has a very strong franchise in France, says Richard McGrath, senior investment analyst and portfolio advisor with AGF International Investors Inc.in Dublin, as well as having one of the best networks in Eastern Europe. Paribas is also well managed.

Johal likes Paribas because he likes France’s economy. French consumers are less leveraged than consumers in other developed markets, he says. So, there are opportunities to lend. As well, French banks have seen solid growth in their retail businesses, he says, and are a lot like Canadian banks in their “appetite for risk and balance-sheet management.”

But although balance-sheet risk is similar, Johal adds, French banks don’t have the same level of capitalization as Canadian banks. Paribas’ Tier 1 capital ratio — a bank’s core equity capital as a percentage of its risk-weighted assets — was 7.6% as of Sept. 30, vs 9%-10% for Canadian banks.

The French government has offered support to the French banks, as the Canadian government has done with Canadian banks. As in Canada, the intention in France is not to rescue the banks, which don’t need it, but rather to make sure they aren’t at a disadvantage relative to their global competitors, given the level of government support given to banks in other countries. Under the plan, Paribas will have access to 2.5 billion euros in funding.

In the nine months ended Sept. 30, Paribas reported net income of 4.4 billion euros, vs 6.8 billion euros in the same period a year earlier. Revenue was 22.5 billion euros vs 24.1 billion euros. Loan-loss provisions were 3.2 billion euros in the nine months vs 980 million euros a year previous. Total assets were 1.8 trillion euros as of Sept. 30, with debt of 151.5 billion euros and shareholders’ equity of 50.4 billion euros.

Paribas has been trading at very low valuations, McGrath says.

In fact, Johal says, shares are relatively cheap, trading at around five times 2009 earnings estimates, with an expected ROE of 16%.

There are 911.8 million widely held shares outstanding, which closed at 40.18 euros on Nov. 18.

A Nov. 12 report issued by the London office of J.P. Morgan Securities Inc. rates Paribas’ stock as “neutral,” with a 12-month price target of 60 euros. The report notes that Paribas has “weathered the structured credit crisis very well so far.”

However, the report adds, investors will focus on traditional credit risk, which could be an issue, given the bank’s “large loan book.” Besides Paribas’ own loans, it will pick up additional loans as a result of its October acquisition of Fortis Bank Nederland (Holding) NV’s operations in Belgium and Luxembourg and its international franchises.

Johal notes Paribas’ dividend is strong and safe.

> Credit Suisse Group. An Oct. 22 J.P. Morgan report suggests “overweighting” the stock, stating that Credit Suisse remains its preferred European investment bank. The report points to the firm’s strong wealth-management franchise and solid inflows of new money, the expense management potential in investment banking and the bank’s declining structured-credit assets.

@page_break@Credit Suisse’s crown jewel is its private wealth-management operations. Assets under management were 1.4 trillion Swiss francs as of Sept. 30, with wealth management accounting for SFr751 billion and asset management for SFr588 billion. Wealth management added SFr11.3 billion in new money in the nine months (SFr1.5 billion in net new money in the third quarter, following a gain of SFr14 billion in the second quarter and a loss of SFr9.7 billion in the first quarter). In comparison, net new money was SFr60.9 billion in the nine months ended Sept. 30, 2007.

Credit Suisse also focuses on investment banking; on corporate and retail banking, primarily in Switzerland, where it is the second-largest bank; and on institutional asset management.

Credit Suisse has one of the highest Tier 1 ratios, at 13.7%, the J.P. Morgan report points out, once Sept. 30 figures are adjusted for the SFr10 billion ($10 billion) that Credit Suisse raised in capital in October.

A Nov. 10 report issued by the London office of UBS Ltd., however, rates Credit Suisse’s stock as a “sell,” putting a 12-month price target of SFr32 a share. Credit Suisse stock closed at SFr30.84 on Nov. 14, down 68% from the May 2007 high of SFr96. There are 1.2 billion widely held outstanding shares.

The UBS Ltd. report says Credit Suisse’s current share price reflects cuts in UBS Ltd. analysts’ earnings estimates for Credit Suisse; most other analysts’ estimates are almost 40% higher than what UBS Ltd.’s analysts expect.

That said, the UBS Ltd. report says Credit Suisse still ranks among “the most solid banks globally” and adds that it should be one of the “key ‘early cycle’ stocks to play in the sector if operating conditions turn for the better.” But, the report adds, it is way too early to play this theme.

Credit Suisse reported a net loss of SFr2.2 billion in the nine months ended Sept. 30, vs net income of SFr7.2 billion in the same period a year earlier. Revenue was SFr14 billion in the 2008 period, way down from SFr31.5 billion in the 2007 period; the provision for credit losses was SFr327 million vs SFr37 million a year earlier.

Total assets were SFr1.4 trillion as of Sept. 30, with long-term debt of SFr165 billion and shareholders’ equity of SFr39 billion. The UBS Ltd. report notes that Credit Suisse targets a “through-the-cycle after-tax return on equity of at least 20%.”

> HSBC Holdings PLC. HSBC’s share price did not drop the way those of the other three banks did. Indeed, it held up well in the period from July 1, 2007, to Sept. 30, 2008; even during the recent October market tumble, HSBC’s share price did not fall as much as most others. It closed at £7.06 on Nov. 18, down 25% from its September high of £9.38. The all-time high was £10.28 a share in November 2006.

According to Johal, HSBC was one of the earliest banks to recognize how bad the subprime mortgage mess was going to be; it took heavy provisions against losses and reduced its exposure. Even though HSBC was one of the largest subprime mortgage lenders — both through originations and in terms of balance-sheet holdings — it handled the situation “drastically better,” Johal says, than most other banks.

HSBC is still “relatively well capitalized,” Johal adds, with a Tier 1 capital ratio of 8.9% as of Sept. 30. He notes it has a strong, “safe” dividend, which yields about 10% at the current annualized rate of 72¢.

Predominantly a retail bank, HSBC is very diversified geographically, with about 25% of its $42.9 billion in revenue in the six months ended June 30 coming from Hong Kong, 20% from North America, 15% each from Britain, Europe and other Asian markets, and 10% from Latin America.

Johal expects HSBC will increase its market share by continuing to grow organically and using its balance sheet to “make sensible acquisitions.” He notes that HSBC particularly wants to grow in Asia and other emerging markets.

A Nov. 10 UBS Ltd. report rates HSBC’s stock as “neutral,” while a Nov. 10 J.P. Morgan report recommends “underweighting” it.

UBS Ltd.’s 12-month price target is £7.70 a share, barely higher than the £7.06 at which the shares closed on Nov. 18, but well below the September high of £9.38. The report suggests HSBC is finding revenue harder to come by “across geographies.”

The J.P. Morgan report notes a number of negatives for HSBC and its subsidiaries, including: higher loan-loss provisions for HFC Bank Ltd in Britain; a loss at HSBC USA Inc.; falling margins in Hong Kong; and higher impairments in Asia Pacific and South America. Although HSBC’s European operations have significant deposit inflow, the J.P. Morgan report thinks HSBC’s shares are expensive in the current environment and is not sure that management “will be able to capitalize on HSBC’s relative strength.”

HSBC reported net income for the six months ended June 30 of $8.3 billion, down by 27.9% from $11.4 billion during the same period a year earlier. Revenue was $42.9 billion vs $42.1 billion. Loan-loss provisions and impairment charges were $10.1 billion vs $6.3 billion. Assets were $2.5 trillion as of June 30; debt was $230.3 billion and shareholders’ equity was $126.8 billion.

HSBC’s Nov. 10 trading statement did not give any details of its nine month earnings, but did state pre-tax earnings were lower than in the same period a year earlier, but that income was not down by as much it had been in the fiscal first half.

> UBS AG. UBS has the largest private-client business in the world, with $3 trillion in AUM. What got the company into trouble, Johal says, was that it took on too much risk as it tried to increase its global investment-banking presence. So, the sooner it reins in that side of the business, the better it will be for the private-client business. The concern, he says, is that clients will leave if they think the company still has too much risk.

Indeed, almost SFr75 billion in AUM was withdrawn from UBS’s private-client business in the third quarter ended Sept. 30, and the Swiss government has stepped in to recapitalize the company. The Swiss National Bank will put SFr54 billion and UBS will put SFr6 billion into a fund that will buy $60 billion of UBS’s illiquid securities and other assets. The fund is to terminate in eight years, although this could be extended another two to four years. The cash flow from the assets will be used to service the loan. If SNB incurs a loss at the fund’s termination, it will receive up to 100 million ordinary shares in UBS.

The Swiss government will provide UBS’s SFr6-billion share by purchasing mandatory convertible notes. The notes will pay an annual coupon of 12.5% for the 30 months until conversion. At that point, the Swiss government will own about 9.3% of UBS’s 2.9 billion widely held outstanding shares.

On the plus side, UBS’s sale of structured-credit assets to SNB puts UBS “in a position to become a clean bank as of 2009,” says a Nov. 3 J.P. Morgan report. In addition, the report states, the benefits of a “material” staff reduction should be seen in 2009.

The negative side, however, is in the bank’s outflows in wealth-management AUM. The J.P. Morgan report says it is too early to say how big the losses will be, but suggests that “the franchise loss is not structural.”

Still, the report recommends “overweighting” the stock in the European banking sector. The shares closed at SFr13.27 on Nov. 18, down by 84% from the high of SFr80.45 in June 2007.

UBS reported net income of SFr433 million in the third quarter, but a net loss of SFr11.2 billion for the nine months to Sept. 30, vs net income of SFr8.1 billion in the same period a year earlier. Revenue was only SFr6.3 billion, vs SFr35.9 billion, due to a loss of SFr17 billion on trading. Loan-loss provisions were SFr686 million; UBS had made none in the same period in 2007.

UBS’s assets were SFr2 trillion as of Sept. 30, with debt of SFr193.1 billion; shareholders’ equity was SFr46.4 billion and the Tier 1 capital ratio was 10.8%. IE