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