China-Singapore Jingwei Client, April 13th Global Investment Bank may witness its annual profit completely wiped out by the new crown virus crisis. According to the British "Financial Times" on the 13th, a new report jointly written by Oliver Wyman and Morgan Stanley shows that even the most optimistic "rapid rebound" scenario may mean that investment banks' profits will decline by 100% this year. Investment banks will be more vulnerable than their American counterparts.
If we follow the more pessimistic model of "'deep global recession' lasting a year or more", some weaker banks will fall into huge losses. In this scenario, credit losses may surge to between US $ 200 billion and US $ 300 billion; in contrast, under rapid rebound scenarios, credit losses may be between US $ 30 billion and US $ 50 billion.
New latitude and longitude in the data map
Morgan Stanley ’s Magdalena Stocklosa stated that although the banking industry has established a solid capital and liquidity buffer since the financial crisis, “the rate of return has never changed when entering a major stressful event. Low, and the first line of defense for banks is profitability before provision. " She and James Davis, who consulted with Ovi, were the lead authors of the report.
Stocklosa pointed out that "profit pressure may expose the structural weaknesses of certain business models, and the performance gap will be quite large." This means that JP Morgan, one of the increasingly dominant US commercial banks, may use the crisis to seize more market share from smaller European counterparts.
The report pointed out that among the big banks, Deutsche Bank and Commerzbank are already in the worst situation. They have little profit to absorb a wave of loan defaults. At the same time, Credit Suisse and UBS are the most advantageous European investment banks, largely due to the shift from investment banking to financial management and asset management.
Amidst the turmoil caused by the closure of the pandemic, the resilience of banks is being closely watched. Governments and central banks have introduced measures to support banks, including temporary deregulation to free up US $ 500 billion in capital and the injection of huge cheap funds into the banking system.
Stocklosa said that despite all the help, "we are still talking about a poor profitability, rather than the bank falling below its capital requirements."
The report said that during the past five years, the average return on equity of wholesale banks was 9% to 10%. In the best scenario, this measure of profitability will be halved from 2020 to 2022, to 4% to 5%, far below the target set by investors (10%); and for the weakest banks In general, the indicator will fall to zero or negative.
According to reports, at the time of this crisis, the eurozone banking system was in a particularly fragile state. A study released by the European Central Bank last week showed that the average rate of return in 2019 has dropped to 5.2%, less than half of its US counterparts.
According to the report, this performance will "increasing the call for major strategic changes and potentially become a catalyst for the merger of European and second-tier banks."
In addition, the report also pointed out that "during public health emergencies, banks are unlikely to cut costs through layoffs." HSBC has said it will postpone the "majority" of layoffs in the restructuring plan. The report added that some banks may be forced to sell assets or exit certain lines of business to create breathing space. (Sino-Singapore Jingwei app)