The Strategist

EY: US banks are increasing profits much faster than European banks

10/02/2017 - 14:29

The profit of the top ten US banks increased by 19 percent in the first half of 2017. The same figure for the banks of the EU climbed up just by 5 percent, Ernst & Young reported.

Alex Proimos
Alex Proimos
According to British consulting company Ernst & Young (EY), large US banks increase the gap from European competitors in terms of profit. According to the results of the first half of 2017, the 10 largest financial and credit institutions of the United States received a total profit of 57.5 billion euros, which is 19 percent higher than in the same period last year, states the EY study published earlier.

At the same time, the corresponding indicator of the ten largest banks in Europe grew by five percent and amounted to 24.2 billion. The US list is topped by JPMorgan Chase, which has a profit of 11.8 billion euros. The European rating is headed by the British bank HSBC (6.6 billion euros), followed by the French BNP Paribas (4.3 billion euros). The only representative of Germany in the European Top-10 is Deutsche Bank, which took the ninth position with a figure just above 1 billion euros.

"Many banks in Europe are still busy reducing old debt and reorganizing," said EY expert on banks Dirk Müller-Tronier. According to him, this process is often associated with high costs. First of all, we are talking about the banks of Southern Europe, he added.

In turn, the American banking sector recovered faster in after the financial crisis of 2007-2008 due to the state aid. In addition, European banks are currently not making a profit from lending operations due to low interest rates, Müller-Tronnier pointed out. "From this point of view, the US banks are also in a better position due to a higher level of loan interest," he noted further.

According to the EY forecast, the profit gap between the major US and EU banks will increase in the coming months, which is due, inter alia, to Washington's policy. "The plans of the new US administration for deregulation (the banking sector) are foreshadowing a significant increase in the profits of American banks," said EY partner Klaus-Peter Wagner.

In February, the new US president, Donald Trump, signed a decree on easing the regulation of American banks. The document provides for the revision of the Dodd-Frank Law on Financial Reform adopted after the 2008 crisis. Established in 2010, the rules limited the activities of banks, hedge funds and derivatives trading, which allowed the US to quickly exit the crisis. The law, in particular, obliged financial institutions to increase the share of equity in order to avoid the occurrence of excessive debt.
The Republican Party considers the restrictions adopted under President Barack Obama to be too bureaucratic and detrimental to both banks and their clients. Their withdrawal will, on the one hand, revitalize economic activity, but will also increase the risks of rapidly inflating financial bubbles in international markets.