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).
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.