Home Economy News Banks build capital, see investors favor others – study

Banks build capital, see investors favor others – study

Economy43 minutes ago (Dec 01, 2021 06:22PM ET)

(C) Reuters. FILE PHOTO: A man is seen silhouetted wearing a protective face mask, amid the coronavirus disease (COVID-19) pandemic, walking near the financial district of New York City, U.S., October 18, 2021. REUTERS/Shannon Stapleton

By David Henry

NEW YORK (Reuters) – The global banking industry built up capital and showed its stability during the pandemic but its return on equity plunged and it has lost favor with investors to industries with more attractive growth prospects, according to a new study.

“Banks withstood the pressures of 2020, and capital reserves rose last year. But it came at a cost,” consulting firm McKinsey said on Wednesday in its annual banking review.

Return on equity for banks in North America fell to 8% in 2020 from 12% in 2019 and halved for European banks to 3% from 6%.

“The industry became safer, more predictable, more commoditized,” the report said.

Investors now value banks as though they were utilities. Banks trade around 1.0 times book value compared with 3.0 times for all other industries, the report said. The discount was less a decade ago, about 1.0 times versus 2.0 times.

The disparity comes even after the industry’s stock market value increased 20% to October 2021 from the month before the pandemic.

That reflects a banking outlook that is “decent and resilient, but not attractive,” said McKinsey.

Return on equity could increase from 6% to between 7% and 12% in 2025, largely depending on changes in interest rates, government economic support and how much cash is piled onto balance sheets.

The banks that will fare better than peers, the consultants said, will be those that move quickly toward businesses that earn fees and require less capital, such as payments, wealth management and investment banking.

Banks build capital, see investors favor others – study

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Related News