Chris Evans

13th April 2023

Global Industry Analysis

How secure is the global banking sector and is another 2008 on the horizon?

The politically partisan debate following the collapse of the Silicon Valley Bank (SVB), has been fragmented into two main arguments. Some claim President Trump’s rolling back much of the Dodd-Frank regulation, enacted as part of the response to the 2008 financial crash, and the Volcker Rule may have led to a return of so-called ‘casino banking’. Others claim such regulations, while well-intentioned, have weakened not strengthened banks and financial institutions. Some outliers claim it has made little difference.

The failure of Credit Suisse which followed soon after was another warning shot that the lessons of 2008 have not been adequately learned. It experienced significant losses and reputational damage due to its involvement in the Archegos Capital Management and Greensill Capital scandals and, some say, it never truly recovered.

The resulting Swiss Government supported UBS takeover of Credit Suisse may have prevented contagion from spreading across the financial sector, however, it has created a banking giant whose combined assets of $1.7 trillion are twice the size of the entire Swiss economy.

Clearly, instances such as SVB and Credit Suisse getting into difficulty, raise concerns of a return to the chaos of 2008 and the irresponsible behaviour that led to it. However, it is difficult to measure the overall stability of the banking sector based solely on the recent issues faced by SVB and Credit Suisse - until now.

Plimsoll has produced its latest study to assess the financial health and future stability of the global banking sector. The latest Plimsoll Analysis individually assesses the top banks and shows several developing trends that should be of concern or interest for business leaders throughout the industry, including:

Which of the world’s 1000 leading banks are most financially exposed?

33 of the 1000 banks and financial service companies included in the Plimsoll Analysis are making a loss. 21 of those banks are losing money for the second year running. In the event of further macroeconomic headwinds, these are the most vulnerable to failure. If there is a contagion of banking failures in a future crisis, these are likely to be the first dominoes to fall.

M&A deals now appear to be inevitable

As seen with both Credit Suisse and SVB, a larger, better-capitalised rival swooped in to capture, restructure and subsume them. With a growing polarisation between stable, adequately capitalised banks and those vulnerable institutions that need an injection of funds, a period of consolidation looks inevitable. The Plimsoll Analysis has named 45 of the world’s leading banks that are ripe for takeover. How many of these companies will be bought by a larger rival in the coming years?

Demand continues to grow but profits are falling

Year-on-year bank revenues are up 3.9% (after 4% growth in the previous year) as mortgage demand continues to exceed expectations. Margins are also continuing their impressive recovery from the pandemic. According to the latest Plimsoll Analysis, the average banking sector margin remains around 40%. Are the low single-digit growth rates of the sector the cause of banks overexposing themselves in the race for more of that high-margin business?

The latest Plimsoll Analysis is an invaluable resource for anyone with an interest in the long-term health and exposure of the global banking sector. It separates the banks that are making healthy profits from those that are loss-making, those that are efficiently generating revenue from assets from those struggling to compete in 2023. It also allows you to spot the regions with the highest proportion of banks in danger and those where regulation and better-managed Banks are working.

In short, whether you are an executive, a regulator, an investor or just have a general interest in the sector, the Plimsoll Analysis provides a convenient assessment of the market including a financial health performance check on the world’s top 1000 banks.

For more information, please click here.