Page 28 - ASSET MANAGER 10 (EN)

28 • EUROPEAN BANKING STUDY
CHALLENGES FOR BANKS IN EUROPE RISE
Europe's banks have been facing a profitability problem for years. According to the current European Banking Study by strategy and management consultancy zeb, profit- ability deficits will continue to increase if not consistently counteracted.
Authors: zeb Partners Dr. Florian Forst, Dr. Dirk Holländer and Dr. Olaf Scheer
With its European Banking Survey (EBS), zeb has, for the fifth time, examined where European banks stand, what challenges they have to master and which development opportunities exist for greater profitability
Slightly improved results, but still below the cost of equity
Ten years after Lehman, Europe's top banks are still facing major challenges. Although most institutions have man- aged to work through their regulatory agenda and meet required capital requirements, the increase in profitability to 7.1% RoE in 2017 can only be attributed to extraordinary effects and not the increase in earnings power from oper- ating activities. As a result, profitability is still below the cost of equity (CoE).
A simulation until 2022 shows declining results with- out corresponding countermeasures
A central part of EBS is the perspective simulation of key bank figures every year. It is based on the balance sheets and P&L values of the 50 top banks in Europe and as- sumes that the scenario will be the same for the next few years. Holistic calculation showed that bank profitability will decline from the current 7.1% (2017 ) to approximately 4.2% by 2022. At the same time, the capitalisation of in- stitutions is likely to fall from an average of 14.1 % in 2017 to around 12.2% in 2022. Significant drivers for reducing profitability and capitalisation are regulatory requirements, continued low interest rates and digitisation.
Rating of banks at the level of 2009/10
A look at the total shareholder return of the top 50 banks in Europe from 2016 to 2017, at first glance, shows a pos- itive trend. However, the price-to-book ratio remained be- low the important threshold of 1.0x, far below the market average, and thus, at the level of the crisis year, 2009/10.
Four strategic policy options
Against this backdrop, European banks have four strategic options for action; however, none of these should lead to sus- tainable success as a matter of course. They are as follows:
ABOUT ZEB
Founded in 1992, zeb is one of the leading strategy and management consultancies for financial ser- vices in Europe. Internationally, 1,000 employees work for the group in 17 locations.