zeb/market flash (Issue 5 – April 2013)

zeb.market.flash provides an overview of the performance of the world’s largest banks (measured by market capitalisation). The relevant factors are briefly and concisely described, analysed and classified by our experts. For our analyses, we take a close look at relevant indicators for the valuation of the capital market, such as stock returns, as well as macroeconomic and bank-specific drivers. This issue (Q1 2013) deals with the low interest rate environment 2013. What’s in it for you?

State of the banking industry

  • In Q1 2013, the upward trend of recent quarters continued as market capitalization reached highest value since 2010
  • Investors continue to favor commercial banks; gap between mature and growth markets narrows
  • CDS spreads of Western European banks again increased significantly in March 2013 due to the recent market turmoil in Cyprus

Key banking drivers

  • Interest rates remain at historic lows, but are not yet fully reflected in business margins
  • Banks’ RoE forecasts predict increasing RoEs despite weak economic fundamentals

Special topic: Succeeding in a low interest rate environment

  • A detailed analysis shows that the current low interest rate level may reduce net interest income of banks by up to 14%, thus threatening banks’ profitability
  • Only a differentiated and effective set of strategic initiatives will help banks to limit the losses occurring from low interest rates

Picture: Skyline Hong Kong

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