Deutsche Bank skriver i en analyse af de europæiske banker, at de havde et meget hårdt år i 2020, men at de synes at have nået bunden. De klarer sig dog ikke nær så godt som de amerikanske, der også ventes at få gavn af de massive Biden-stimuli og af en øget inflation.
European bank performance in review: Hitting the bottom, finally?
2020 was an extraordinary year for banks, as for most other industries. In Europe, banks barely made money, as revenues fell substantially and loan loss provisions doubled. Expense cuts cushioned the blow only partly. Capital and liquidity ratios reached record highs though, thanks to disciplined risk management and funding support from central banks.
Once again, European banks underperformed their US peers. But how do their results compare in the longer term, ten years after the end of the financial crisis, and also vis-à-vis smaller competitors?
In Europe, the largest banks suffered a heavy drop in revenues of 5% yoy. The main driver was a 6% contraction in net interest income, due to lower rates in many markets (including the US), continuing margin pressure, a stronger euro and lower dividend income, a subcomponent. Fee and commission income dipped 1%, while trading income picked up 4%. Banks reduced administrative expenses further, by 5% (the fifth consecutive annual decline), but this was not enough to make up for the parallel drop in revenues. The average unweighted cost-income ratio – excluding one-off effects – therefore rose 1 pp to 64%.
Even more importantly, loan loss provisions doubled as banks expected higher insolvencies due to the severe recession, especially in the corporate sector. Remarkably, so far actual credit losses have been limited and non-performing loans have hardly risen, not least because of unprecedented support by governments, including fiscal transfers and a waiver for mandatory insolvency notifications in several countries.
All in all, post-tax profits slumped 62%, as a number of institutions made a net loss, sometimes also driven by goodwill writedowns and other one-off hits. Total net income was the lowest since 2013, during the European sovereign debt crisis.
European bank performance: A decade in review
Revenues & costs at Europe’s major banks
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However, the overall results mask significant changes over the course of these 12 months. For instance, the net interest income pain got gradually worse quarter by quarter, while trading income also lost some momentum towards the end of the year. Banks’ cost cuts deepened in line. By contrast, loan loss provisions had more than tripled in H1 but slowed down a lot in H2, allowing for at least a meagre net income after it had essentially been wiped out in the first half. This bodes relatively well for 2021.
Provisions will probably be materially lower and profitability may recover much of the recent setback. And once the pandemic is fully over, with huge stimulus packages continuing to boost the economy, inflation might pick up and interest rates might finally rise again, to the benefit of banks’ revenues.
US banks in better shape
Revenues & costs at all US banks
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How does the situation look like on the other side of the pond? US banks on aggregate have weathered the coronavirus shock better than their European competitors, as they did in previous crises. Their revenues have been more stable (down less than 1% yoy) and their profits have declined less (-37%, to the lowest level since 2012).
They were more resilient despite a bigger surge in loan loss provisions (about +140%, to the highest level since 2010) even though the US economy has been hit less hard by the crisis (2020 GDP -3.5% vs -6.8% in the EMU).
The US economy is expected to surge this year, thanks to rapid vaccinations and a massive fiscal stimulus, providing even more tailwind. The higher stock of provisions and the better macroeconomic outlook should allow US banks to leave the crisis behind much faster than their European competitors.
