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Banks Around The World Face Significant Profits Pressure For The Foreseeable Future

Numerous indicators in the U.S. and around the world are signaling a slowing economy at best and a near-term recession at worst.  The slowing global economy, along with low interest rates, ongoing trade tensions, and intensifying Brexit uncertainty will weigh on banks’ profitability for the foreseeable future.  In the US, whatever benefits banks derived from Trump’s tax reform, if any, are long gone.

Global Macroeconomic Outlook for the G-20

Moody’s Global Macroeconomic Outlook, August 2019

Last week’s announcement from Coalition that American and European investment banks’ capital markets and advisory’s revenues hit a thirteen-year low is likely to be the beginning of more challenges to come.  Even before that announcement, Moody’s Investor Services had changed its positive outlook on global investment banks to stable precisely due to slower economic growth and lower interest rates.

Today In: Money

Drivers of Moody’s Stable Outlook for Global Investment Banks

Moody’s Investors Services

As a recession comes closer, bank risk managers, investors, regulators, and rating agencies will be monitoring banks’ loan impairments carefully.  According to the Fitch Ratings’ Large European Banks Quarterly Credit Tracker – 2Q19, released last week, “The economic slow down in Europe has not resulted in material new impaired loans yet, but the substantially weakened economic outlook has increased the likelihood of an at  least modest increase in impaired loans.”

Impaired Loans/Gross Loans

Fitch Ratings, Large European Banks Quarterly Credit Tracker

Banks’ high holdings of leveraged loans and below investment grade bonds and securitizations, especially those that are less liquid and harder to value, will also weigh on their earnings as the global economy slowdown intensifies.  Fitch Ratings’ recent ‘U.S. Leveraged Loan Default Insight’ shows that its “Top Loans and Tier 2 Loans of Concern combined total jumped to $94.1 billion from $74.5 billion in July. The Top Loans of Concern amount ($40.9 billion) is the largest since March 2017, with six names added to the list and nearly all bid below 70 in the secondary market.”  Unfortunately, underwriting continues to deteriorate. The Federal Reserve Senior Loan Officer Survey showed a modest loosening of lending standards on corporate loans for the second consecutive quarter.

Leveraged Loans of Concern Amount Outstanding

Fitch U.S. Leveraged Loan Default Index.

A slowing economy and low interest rate environment are outside of bank managers’ control. Yet, cost efficiency, is something that banks can influence; it needs to improve for banks to be more profitable.  European banks’ median/cost income ratio, for example, is 66%. “The sector’s structural cost inefficiency will eventually have to be addressed given the persistently weak rate and revenue outlook. Improving cost efficiency faster and developing fee-generating businesses are crucial to sustain profitability in 2H19 and beyond.”

Cost Efficiency

Fitch Ratings, Large European Banks Quarterly Credit Tracker

Global investment banks will also have to be very attentive to what changes need to be made to their business models. While there will be demand for their advisory and distribution services, the demand will slow down in what is likely an upcoming recession.

Capital Markets Revenue Relative to Total Revenue, 2018

Source: Moody’s Investors

Moreover, as banks continue to lay-off front office professionals, some top latent to effect deals well will be lost.  Volatility from Trump’s multiple front trade wars and Brexit will put a lot of pressure on banks with capital market activities.

Aggregate capital markets revenue first-half 2009-19 (USD billions)

Moody’s Investor Services

Banks in emerging markets are also under profit pressure.  Many of the banks in Latin America already have a negative outlook by ratings agencies, particularly due to a slowdown in Mexico and recessionary pressures in Brazil. Asian banks are particularly sensitive to US-Chinese trade tensions.

Emerging Markets: Median GDP Growth by Region

Fitch Ratings

More than ever, to increase profitability, bank executives will need to find ways to diversify their revenue streams in all parts of their banks, commercial, investment bank, asset management as well as in custody and clearing services.  Banks need to be profitable to be liquid and to be well capitalized to sustain unexpected losses. What worries me is that a slowing global economy, coupled with increasing deregulation in the US, such as the recent gutting of the Volcker Rule, will embolden banks to chase yield even more and take excessive risks that could imperil depositors and taxpayers.  More than ever, investors, bank regulators, and rating agencies should remain vigilant so as to spare ordinary citizens the pain of when banks run into trouble.

 

 

Source: Banks Around The World Face Significant Profits Pressure For The Foreseeable Future

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This is the moment when the bank kind of re-branded itself and became HSBC Holdings the bank that you know today. With that said, we’d like you to enjoy our latest video on: the top ten richest banks in the world. Here we’re answering questions like; • Which is the richest bank in the world?! • How much money do the top banks have?! • Is Bank of America the richest bank in the world?! • Who owns the richest bank in the world? • How much money does the richest bank have?! Say Hello on: https://www.instagram.com/aluxcom/ https://twitter.com/aluxcom https://www.facebook.com/EALUXE – SUBSCRIBE to ALUX: https://goo.gl/KPRQT8 WATCH MORE VIDEOS ON ALUX.COM! Most Expensive Things: https://goo.gl/09XcYJ Luxury Cars: https://goo.gl/eOUgfS Becoming a Billionaire: https://goo.gl/rRLgJI World’s Richest: https://goo.gl/m6emkX Inspiring People: https://goo.gl/KxqTdL Travel the World: https://goo.gl/g5BGmm Dark Luxury: https://goo.gl/20ZsSt Celebrity Videos: https://goo.gl/0cs6sx Businesses & Brands: https://goo.gl/otHsTB — Alux.com is the largest community of luxury & fine living enthusiasts in the world. We are the #1 online resource for ranking the most expensive things in the world and frequently refferenced in publications such as Forbes, USAToday, Wikipedia and many more, as the GO-TO destination for luxury content! Our website: https://www.alux.com is the largest social network for people who are passionate about LUXURY! Join today!

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HSBC Chief Steps Down After Less Than 2 Years

HSBC announced the surprise departure of its chief executive officer, John Flint, on Sunday night, saying the bank needed a change at the top to address “a challenging global environment.”

The move comes nearly a year and a half after Mr. Flint, 51, took the helm of the Britain-based global banking giant. His departure was announced along with the company’s second quarter results, initially scheduled for Monday, which showed first-half pretax profit was 15.8 percent higher than in 2018.

The lender also declared that it would buy back up to $1 billion of its own stock, defying some analysts’ expectations that it might pause its strategy of returning extra capital to investors.

“The board believes a change is needed to meet the challenges that we face and to capture the very significant opportunities before us,” Mark Tucker, the company’s chairman, said in a statement. Catch up and prep for the week ahead with this newsletter of the most important business insights, delivered Sundays.

 

Noel Quinn, 57, the head of HSBC’s global commercial banking unit, will hold the role of interim chief executive, the lender said.

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Source: HSBC Chief Steps Down After Less Than 2 Years

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