UBS Helps European Banks Leave US Peers in the Dust
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European banks are more profitable than American ones for the first time in ten years. A study points to UBS being a key reason for that.
The elite of Wall Street usually have their nose well ahead of the game in the perpetual battle between European and US finance industry giants. Or at least they did until the first half of this year. But now the winds have shifted, with a new EY analysis (German only) showing that profits for the main European banks have grown much faster than their American-based counterparts.
Much of this was, of course, driven by UBS’s forced takeover of Credit Suisse, which returned the bank to the top of the heap on the continent. But beyond that, most of the banks on this side of the pond benefited handsomely from the European Central Bank’s move to sharply increase rates, which has helped fatten up interest rate margins.
The cumulated net profit of the ten largest banks (going by balance sheet size) rose by 80 percent to 75 billion euros, according to EY. By contrast, US-based institutions saw profits rise by only 7 percent to about 82 billion euros. In Europe, UBS reported the most first-half profit at 27.4 billion euros ($29 billion in the second quarter alone, mainly related to negative goodwill from Credit Suisse) while in the US, JP Morgan led the pack with 24.8 billion euros in the first six months of the year (reported as $27.1 billion).
“The cumulated net profit of the ten largest banks (going by balance sheet size) rose by 80 percent to 75 billion euros, according to EY.”
There was also a significant change in general levels of profitability, with the rates of return on equity for European banks being at 15.5 percent at the end of June, corresponding to a 5.9 percentage point increase from the same period a year earlier. It was also by far the highest level of the last ten years. In fact, it was the first time in a decade that US banks posted lower RoE of 12.6 percent than their top ten European counterparts.
Much of this was also due to UBS, which by itself would have recorded a more modest profit of 2 billion francs (same in euros) without the impact of having to rescue Switzerland’s second-largest bank.
These positive trends are also having an impact on market capitalization levels. Since the beginning of the year, the value of European banks was up 14 percent at the end of August to sit at a heady 522.5 billion euros. In contrast, the cumulative market of the largest American banks fell by 6 percent to 1.15 trillion euros.
On the SIX Swiss Exchange (SIX) the same was true. Since the start of July, UBS’s shares have only known one direction – up. Over the past three months, the shares have risen by almost 30 percent.
Questions & Answers
Q.What was the main reason for the significant increase in profits for European banks compared to their American counterparts?
What was the main reason for the significant increase in profits for European banks compared to their American counterparts?
The forced takeover of Credit Suisse by UBS was a key driver, alongside European banks benefiting from the European Central Bank's move to sharply increase interest rates. These factors boosted interest rate margins considerably.
Q.How did the profitability of the ten largest European banks compare to American institutions in the first half of the year?
How did the profitability of the ten largest European banks compare to American institutions in the first half of the year?
The cumulated net profit of the ten largest European banks rose by 80 percent to 75 billion euros. In contrast, US-based institutions saw their profits increase by a lesser 7 percent, reaching about 82 billion euros.
Q.What was the return on equity for European banks at the end of June, and how did it compare to US banks?
What was the return on equity for European banks at the end of June, and how did it compare to US banks?
European banks achieved a return on equity of 15.5 percent at the end of June, a 5.9 percentage point increase from the previous year. This was higher than the 12.6 percent RoE posted by US banks.
Q.What impact did these trends have on the market capitalisation of European and American banks?
What impact did these trends have on the market capitalisation of European and American banks?
The value of European banks increased by 14 percent to 522.5 billion euros since the beginning of the year. Conversely, the cumulative market of the largest American banks fell by 6 percent to 1.15 trillion euros.
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