zeb.market flash (Issue 17 – April 2016) Banking industry shocked by financial market eruptions— new banking crisis imminent?


1. State of the banking industry

  • Global capital markets were massively distressed during the first quarter of 2016—significant loss of
    market cap. (global top 100 banks: -12.1%), decline in P/B ratios of around 9% on average and the
    lowest TSR performance of all industry sectors
  • Among global top 100 banks, especially shareholders of Western European banks had a very rough
    quarter losing 15.2% on average

2. Economic environment and key banking drivers

  • Worsening economic figures for China and the ECB’s decision to further expand its ultra-loose
    monetary policy (rate on main refinancing operations reduced by 5bp to 0.0%, new series of targeted
    longer-term refinancing operations, TLTRO II) dominated the economic environment in Q1 2016
  • Business climate deteriorated again with figures declining for at least the third consecutive month
  • In Q1 2016, Western European banks once again reported massive bottom line issues for the second
    half of 2015—full year post-tax return on equity of just 6.0%

3. Special topic: Sell-off in European banking industry—fundamental reasons or exaggerated fear?

  • Negative TSR performance goes along with a significant reduction in the profitability outlook for
    respective banks
  • Pessimistic profitability outlook combined with bad news from the Chinese economy created toxic
    sentiment leading to a strong reaction in the capital market

Picture: Skyline New York

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Author Dr. Dirk Holländer

Dr. Dirk Holländer

Senior Partner Office Frankfurt

Volker Abel

Senior Manager zeb Frankfurt
Author Dr. Ekkehardt Bauer

Dr. Ekkehardt Bauer

Senior Manager Office Münster


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