Banks' global capitalisation drops 20%: Study

MUMBAI: Banks all over the world-and particularly those in Europe-fared poorly at a time when many observers were expecting the global economy to be recovering, a study conducted by the Boston Consulting Group showed. European banks' loss of value helped depress the capitalization of the entire global sector by 20 percent during 2011-an alarming reversal of the sector's recovery following the worldwide banking crisis. With the exceptions of Canada and Australia, developed nations' banking sectors suffered big setbacks, delivering disappointing total shareholder returns (TSRs) and profits.

The overall picture portrays a marked swing in banks' value from West to East, a trend first identified by BCG in 2008. From 2007 through 2011, Western Europe's banking market cap plummeted by 58 percent, with the banks of Central and Eastern Europe losing 47 percent. For comparison, consider that the global banking sector lost 34 percent of total market cap in that time. North America's banks fared a little better in relative terms, shedding 25 percent over the four-year period.

"The growing prominence of emerging markets is plain to see," said Ranu Dayal, a BCG senior partner and coauthor of the study. "We also see it in the big drop in Europe's share of total global market cap-from 35 percent in 2007 to 23 percent in 2011-and in Asia-Pacific banks' capturing almost 36 percent of global market cap. Although North America did a little better, gaining 3 percentage points of the aggregate market cap to corner a total of 27 percent in 2011, the overall global shift in value is unmistakable."

It is not just an Asia-Pacific story: the BCG study reveals that Latin American banks' market cap grew by 14 percent from 2007 through 2011, giving them another 3 percent of banks' aggregate market cap worldwide. Latin America was the only region whose banks showed gains in absolute market cap.

"Emerging-nation banks are doing better for two simple reasons," noted Dayal. "First, they are benefiting from the enormous numbers of customers and businesses who, for the first time in their lives, are starting to open bank accounts, take out loans, and participate in other banking interactions. Second, there's a growing class of affluent and wealthy customers in those populations who help boost banking revenues."