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NEW YORK, Dec 1 (Reuters) – The worldwide banking trade constructed up capital and confirmed its stability throughout the pandemic however its return on fairness plunged and it has misplaced favor with buyers to industries with extra engaging development prospects, based on a brand new research.
“Banks withstood the pressures of 2020, and capital reserves rose final yr. Nevertheless it got here at a value,” consulting agency McKinsey stated on Wednesday in its annual banking .
Return on fairness for banks in North America fell to eight% in 2020 from 12% in 2019 and halved for European banks to three% from 6%.
“The trade turned safer, extra predictable, extra commoditized,” the report stated.
Buyers now worth banks as if they have been utilities. Banks commerce round 1.0 occasions ebook worth in contrast with 3.0 occasions for all different industries, the report stated. The low cost was much less a decade in the past, about 1.0 occasions versus 2.0 occasions.
The disparity comes even after the trade’s inventory market worth elevated 20% to October 2021 from the month earlier than the pandemic.
That displays a banking outlook that’s “first rate and resilient, however not engaging,” stated McKinsey.
Return on fairness might improve from 6% to between 7% and 12% in 2025, largely relying on adjustments in rates of interest, authorities financial help and the way a lot money is piled onto steadiness sheets.
The banks that may fare higher than friends, the consultants stated, might be people who transfer shortly towards companies that earn charges and require much less capital, resembling funds, wealth administration and funding banking.
Reporting by David Henry in New York
Modifying by Mark Potter