Monday, February 23, 2009

Banks market cap down $5.5tn in a year

I just picked up Boston Consulting Group's (BCG's) annual report on banking which is called “Living with New Realities: Creating Value in Banking 2009”.

The preface says it all:

"Since the pre-crisis peak, the market capitalisation of the global banking industry has fallen by $5.5 trillion. This is equivalent to 10 percent of global GDP ..."

The report’s tables show that only four large-cap banks survived 2007-2008 with market capitalisation over $100 billion: ICBC, China Construction Bank, JPMorgan Chase and HSBC.

It then makes four key forecasts for the forward landscape of banking:

"We expect the much maligned universal banking model to re-establish its primacy. The fundamentals of the model are sound. These banks are built on strong customer relationship and funded predominately from their own deposit base.

"At the same time, banks will become more focused. They will compete where they can win. Large banks will still loom over the landscape, but they are much more likely to be multi-local institutions - repeating a simpler, more standardised business model across fewer countries - rather than wide-ranging, highly complex global titans. Competitive advantage is bank in fashion.

"Banks will move forward by returning to the past. They will once again emphasize the 'old-fashioned' products and practices, where the bias is to lend what gets taken in as deposits. Their business models will reflect a more cautious, more highly regulated, and less risk-oriented environment. There will be a stronger focus on transaction, processing and fee-based activities.

"This does not mean that banking will be dull or easy. If anything, it will become more demanding as banks get back to the business of focusing on customers - the emphasis will be on relationships, not products. Branches may need to extend their hours of operation. Advice will need to be more meaningful and relevant, and thus more valuable. Operations will need to become not only more efficient, but also more responsive to customers."

Not sure about those forecasts, as a return to basics with a focus on the customer is what some banks have been doing for years.

Nevertheless, the report has lots of charts and statistics which are worth a view, and shows which banks in the Top 30 were the best and worst performers by market capitalisation, return on equity and more.

For example, the top 5 gainers are: Blackrock, Sberbank, Unibanco, China Merchants Bank and State Bank of India; and the top 5 losers: Royal Bank of Scotland, Citigroup, Lloyds TSB, Barclays and UBS.



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