For a long time, Europe’s leading financial institutions have lagged behind US competition. The sharp rise in interest rates has now brought about a turning point.
A significant jump in profits driven by interest rate increases has brought Europe’s leading banks on a par with their US competitors in the first half of 2023. The increased interest rates also had a positive impact on the business of banks in the USA, explained EY partner Robert Melnyk based on an analysis by the consulting firm. “The bankruptcy of the Silicon Valley Bank, the turbulence in the technology sector and the continued weak business with IPOs […] US banks have clearly been hit harder, as the return on equity comparison shows.”
According to EY calculations published on Monday, the net profit of the ten largest banks in Europe in terms of total assets, of which Deutsche Bank is the only German institution, climbed by 80 percent to almost 75 billion euros in the first half of the year compared to the same period last year. According to EY, this is “by far the highest value in the past ten years”. In the USA, the top ten recorded an increase of 7 percent in the six months compared to the same period last year to the equivalent of a good 82 billion euros.
The major Swiss bank UBS as the top earner
In terms of profitability, Europe’s leading banks even overtook their US competitors for the first time in ten years: the return on equity (RoE) of the ten European banks included in the evaluation was 15.5 percent as of June 30 of the current year. The return on equity puts the profit in relation to the equity capital used and therefore shows how efficiently a company has used this money.
However, the increase of 5.9 percentage points compared to the same time last year was primarily due to the greatly improved results of the major Swiss bank UBS due to the takeover of the ailing Credit Suisse, explained EY. The ten American banks achieved 12.6 percent RoE at the end of June 2023.
According to the information, the best earner among all twenty banks analyzed in the first half of 2023 was UBS with a net profit of around 27.4 billion euros, followed by the US bank JPMorgan Chase with the equivalent of a good 24.8 billion euros.
On the stock market, the US heavyweights are still worth significantly more than the leading banks in Europe: While the ten US banks had a total market capitalization of a good 1.15 trillion euros at the end of August 2023, the market capitalization of the ten banks added up Europe at this point to just over 522.5 billion euros.
Source: Stern
