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16 October 2019

Free BankFocus reports: What do markets really think about bank capitalization?

Our recent BankFocus research series compared market capitalization to bank capitalization in 3 regions: Europe, China and North America. We featured executive summaries on the Bureau van Dijk podcast and hosted an on-demand webinar with Irakli Pipia, senior research analyst for Moody’s Analytics.

Now you can download the full BankFocus research reports for free:

You can also sign up to watch the webinar featuring key takeaways from all 3 reports.

Register to watch the webinar

Here’s a quick summary of each report that explores bank capitalization based on accounting, regulatory and market metrics.

North America

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Banks in North America grew their assets considerably while having more modest improvements in their regulatory and accounting capitalization since 2011.

  • An average multiple of 1.42 to book value brings market capitalization close to the highest ever level
  • The combined assets of 15 of the largest North American banks grew by more than $2.5 trillion since 2011, as shareholders’ equity increased by $265 billion
  • These valuations may be tested, however, by expected pressure on profitability and a more challenging lending environment in the second half of 2019

China

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Market capitalization remains well below book value despite banks in China having grown their assets considerably since 2011.

  • The 14 largest Chinese banks grew their assets by more than $10 trillion and shareholder equity increased by $900 billion since 2011
  • The risk-weighted assets of Chinese banks grew faster than their total assets for the same period, constraining improvements in regulatory CET1 and total capital ratios
  • We believe that the asset risk of these banks is not fully captured by the standard loan book ratios and significant credit risks may reside in off-balance sheet and investment portfolios

Europe

 

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Leading European banks deleveraged considerably and improved their regulatory and accounting capitalization since 2011. Yet the latest market capitalization of these banks remains depressed.

  • European banks deleveraged their assets by shedding almost €90 billion since 2011, while their shareholders’ equity increased by €10 billion
  • Their return on average equity (ROAE) improved from just above 3% in 2011 to 8% at end 2018, yet profitability metrics are still lower that the US and emerging markets
  • Equity markets may have additional concerns about European banks — not visible in headline ratios — that could be related to limited growth prospects, the threat of further regulatory expenses or additional unreported asset quality concerns

 

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