2023-09-18 16:12:43
Since the beginning of the year, European banks have been sailing with the tailwind of rising interest rates. This not only benefits their earnings, but also their share prices. The European Stoxx bank index has increased by 15 percent since the beginning of the year, while its American counterpart, the KBW index, has lost 18 percent. Although the higher interest rates also help US banks, there was a clear headwind here with the difficulties of regional banks such as Silicon Valley Bank.
If you only look at the ten largest banks, as the consulting firm EY did in a study published on Monday, the top European institutions show higher profit growth. According to EY calculations, the ten largest banks in Europe, including Deutsche Bank, significantly improved their cumulative net profit in the first half of the year by 80 percent to 75 billion euros compared to the same period last year. The ten largest US banks increased their combined net profit in the first six months by 7 percent to around 82 billion euros.
Special effect by Credit Suisse
According to EY information, the interim balance sheets of European banks will be significantly influenced by the special effect of UBS. After the takeover of domestic competitor Credit Suisse, the major Swiss bank’s net profit increased almost sevenfold in the first half of the year to 27.4 billion euros. Adjusted for this, according to EY information, UBS would have achieved a net profit of almost 2 billion euros in the first half of the year.
This also reduces the interim balance sheet of the major European banks, whose net profit would then only be 49.3 billion euros. Nevertheless, with profit growth of almost 19 percent, they would still be ahead of the US competition.
More profitable than US banks for the first time
With the special effect of the Credit Suisse takeover, the return on equity of European banks rose to 15.5 percent as of June 30, almost 6 percentage points more than twelve months earlier. According to the EY consultants, profitability reached by far its highest value in the past ten years. For the first time in this period, it was higher than that of the top American institutions. Their return on equity was 12.6 percent at the end of July.
The Swiss UBS also earned the most in the first half of the year with 27.4 billion euros. Behind it is JP Morgan Chase, the largest American bank, with 24.8 billion euros. It is also the bank with the highest market value: 392 billion euros as of August 31st. Behind them are Bank of America with 210 billion euros and Wells Fargo with 139 billion dollars. In fourth place is the first European address, the British-Asian HSBC with 133 billion euros. In comparison, Deutsche Bank remains a lightweight with a good 20 billion euros.
“The major European banks have benefited significantly in recent months from the European Central Bank’s interest rate increases and the associated expansion of the interest margin, as have their US counterparts,” said Ralf Eckert, Managing Partner for Financial Services at EY. The interest rate development more than compensated for the negative effects of the Ukraine war, inflation and stagnating economic growth in Europe.
More stable economy in USA
In addition to the crisis in the US regional banks, the turbulence in the technology sector and the continued weak business with IPOs and takeovers have slowed down the top American institutions, added Robert Melnyk, Partner and Head of Banking & Capital Markets at EY.
A comment from Markus Frühauf Published/Updated: , Recommendations: 2 Markus Frühauf Published/Updated: , Recommendations: 7 Markus Frühauf Published/Updated: , Recommendations: 1
In Eckert’s opinion, further developments depend on the monetary policy of the central banks and the economy. He sees economic growth in the United States as continuing to be robust. Eckert sees no signs of a slowdown. In contrast, the economy in some large EU countries such as Germany is stagnating with significant inflationary pressure. The European banks are likely to feel this.
#Earnings #growth #higher #competitors