Global bank provision surge: big European banks will set aside $23 billion

 Global bank provision surge: big European banks will set aside $23 billion

If you include the banks in the United States, the total amount of provisions of the big banks in Europe and the United States has reached a staggering $117 billion. Citigroup said it would be the highest net reserve since the collapse of Lehman Brothers in the first half of 2009.

The impact of the epidemic on banks is far-reaching

Because of the lasting and far-reaching impact of the epidemic, few economists are optimistic about the economic recovery. They generally believe that when government support ends in the autumn, people will suffer more. Oliver Wyman, a consultancy, predicts that European banks will lose as much as 800 billion euros in loans over the next three years if the outbreak continues to spread.

Jonpeace, an analyst at Credit Suisse, said it could be the worst quarter of the year. He pointed out that under the new accounting standards, banks must take and prepare reserves for possible losses in advance. He also said that at the end of the first quarter, they had made full assumptions and forecasts for GDP growth and employment, and all the results were not as bad as they are today.

Sergio ermotti, chief executive of UBS, told the media that the first quarter tested whether the banks were resilient and able to survive; the second quarter tested whether they could adapt to the normal epidemic.

Bank stocks tumbled

European banks are still affected by the 2008 financial crisis, and the market price is in a slump. European banks shares are down 31% on average this year, while their benchmark stoxx600 index is down only 10%.

On average, the price to book ratio of banks during the outbreak was less than 40%. The combined market capitalization of Barclays, Deutsche Bank and Italys UniCredit is also far behind zoom. During the epidemic period, the latter developed rapidly due to the surge of users demand for video conferencing.

Richard Buxton, head of UK strategy at Jupiter asset management, said it was a general consensus that investment in banks is as stupid as investing in oil giants in a counter cycle. In this season, its unlikely to see any change.

He added that the economic downturn will obviously lead to a large increase in bad debts of banks. No matter what damage the crisis has done to the profit statement, it does not mean that they need to raise more equity capital.

Other income

For European banks with large investment banking operations, growth in some other revenues could mitigate the impact of the epidemic. Earnings from trading stocks, bonds and other assets rose by an average of 69%, thanks to market turmoil and large emergency fundraising by large companies, the Bank of America report said.

Most of these gains come from fixed income. Among them, fixed income income income of JPMorgan Chase, Goldman Sachs and Morgan Stanley has basically doubled.

Although European banks as a whole have a smaller debt trading business, profits at Barclays, Deutsche Bank, Credit Suisse and BNP Paribas are most affected. Analysts expect their trading revenues to grow by an average of 40% to 50%.

When to resume dividend payments, investors are still waiting for the results of the European Central Banks stress test on the epidemic on Tuesday and whether banks can resume dividend payments. Regulators in Europe, Switzerland and the UK banned banks from paying dividends at the start of the outbreak in mid March to force banks to retain capital and lending capacity. Stuart Graham, founder of autonomy research, said few investors expected the ECB to allow banks to return to normal dividend payments later this year, saying January 2021 was a more appropriate date. He added that this could attract investors who are buying stocks as dividends grow. Source: Wall Street news editor: Yang Qian_ NF4425

When to resume dividend payment

He added that this could attract investors who are buying stocks as dividends grow.