zeb.market flash (Issue 22 – Juli 2017)
K E Y T O P I C S
I. State of the banking industry
- The global banking industry lost its pace in the second quarter 2017 with slightly decreasing market capitalization and a relatively weak TSR performance
- On average, global banks’ market cap decreased by 2.4% reaching EUR 6.9 tr and a TSR of +3.7%.
- Moreover, global top 100 banks again with relatively low qoq performance in Q2 2017 (+3.7%).
II. Economic environment and key banking drivers
- The economic climate globally and in the euro area further continued its positive trend in Q2 2017.
- Fed’s decision to increase interest rates for the second time this year further flattened USD LIBOR curve. Meanwhile, ECB decided to keep interest rates unchanged leading to a slightly steeper EURIBOR curve.
- Profitability of banks worldwide improved in Q1 2017─in particular European banks could increase their RoE by 4.0pp to 7.5% on average mainly driven by extraordinary effects, reducing the gap to their US peers considerably.
III. Brexit—first observations in year one after the referendum
- 12 months ago, UK voted for the Brexit. After strong market reactions in the days after the referendum, the situation stabilized during the last year. However, a negative outlook for the long-term remains as the market does not expect any winners in the banking industry.
- UK banks with significant EU business showed weaker TSR performance than their peers without business in the euro area
- In June 2017, the official Brexit negotiations between UK and EU have started. As the outcome of these negotiations is still unclear and the PRA requests contingency plans, affected banks need to prepare themselves for possible Brexit scenarios.