GlobalData : Stocks of top global banks see revival in Q2 2020

03 Aug 2020
Stocks of top global banks see revival in Q2 2020 Posted in Banking

The shares of the top 25 global banks witnessed a revival in Q2 2020 as their aggregate market cap grew 4.2% to US$2,710bn in Q2 2020, up from US$2,601bn in Q1 2020. Of the 25, 18 reported quarter-on-quarter (Q-o-Q) growth, with six banks - Citigroup, HDFC, Morgan Stanley, Goldman Sachs, Truist Financial, and BNP Paribas - growing by over 20%, according to GlobalData, a leading data and analytics company.

Parth Vala, Company Profiles Analyst at GlobalData, comments: 'Markets have been witnessing a V-shaped recovery after the historic low witnessed in Q1 2020 as governments across the globe have been rolling out massive fiscal and monetary measures along with a phased reopening of economic activities. Recent economic data, especially in the US and EU, also promises a continued recovery path.'

Vala continues: 'Furthermore, the relaxation in the Volcker rule, which restricted banks from investing in their own funds such as venture capital, mortgage-backed securities and other riskier financial instruments, brought cheers from the leading banks, which resulted in a stock rally. The relaxation is likely to generate a substantial amount of capital and liquidity in the market.'

Of the seven banks that reported a decline in market cap, the major losers were HSBC and Wells Fargo. HSBC's substantial goodwill impairment related to its European commercial banking, and global banking and markets businesses took a heavy toll on the company's profits. As part of its restructuring, the bank intends to undertake a slew of measures, including large layoffs and asset sales of around US$100bn in the US and Europe over the course of the next three years.

Factors that affected Wells Fargo included a continued balance sheet cap of US$1.95 trillion - imposed by the Fed related to the opening of millions of unauthorized accounts - and consistent rise in quarterly operating expenses. The bank, which was not long ago one of the largest mortgage originators, has been reporting a decline in mortgage originations and mortgage income. The COVID-19 pandemic has made the matter worse for the bank's investors as there is likely to be a cut in the quarterly dividend following Fed's decision to restrict payouts.

Vala concludes: 'The second half of 2020 is unlikely to return to pre-COVID-19 normality, however, after strengthening its capital structure and implementing several other regulations post-2008 crisis, the banking sector appears to be adequately prepared to face the prevailing uncertainty in the financial markets.'