The view that the performance bar set by US globally systemically important banks (GSIB’s) for FY 2018 would be too high for EUR GSIB’s to match has been borne out by the results releases to date. There are many plausible explanations for the relative under-performance (GDP growth, interest rates, tax and regulatory response, rigid cost structure etc etc) but the basis points (bps) don’t lie. The previously posted analysis on 8 US GSIB’s has been updated to compare the results with the 6 EUR GSIB’s who have reported so far.
For analysis please click the link EUR & US GSIB FY2018 Stats
Here are the key points:
Returns: EUR GSIB Returns on Equity and Tangible Equity lag behind US GSIB’s, with several struggling to achieve returns above their cost of capital (≈10.0%) even 10 years after the GFC.
Capital Adequacy: Core Equity Tier1 ratio’s for EUR & US GSIB’s are coalescing around target areas of 11-13%, however EUR GSIB’s arguably face higher compliance & conduct fine uncertainties.
Leverage: Supplementary Leverage Ratio’s are 4-6% for all EUR GSIB’s, above the regulatory minimum 3% but well below US GSIB’s that have a higher requirement.
Efficiency: There is a bifurcation of EUR GSIB’s Cost-Income Ratios with the most efficient operating in the 45-55% range but the rest above 70%, which suggest the need for more radical actions on costs and business models.
Distributions: EUR GSIB Net Payout Ratio’s are well below US levels due to a lack of income to finance share buy-backs to supplement dividend distributions.