Contact Information: Eric Gregoire +1 617 850 3783
Escalating Crisis in the United States and Rising Titans From Emerging Markets Define Turbulent Year for Banks
The U.S. Banking Sector Posted a 21 Percent Return in 2007 -- the Second Lowest Among Major Markets; China Gave Rise to Three of the World's Four Largest Banks
| Source: The Boston Consulting Group
NEW YORK, NY--(Marketwire - March 31, 2008) - The start of the financial crisis in the
United States took a heavy toll on banks worldwide last year, but some
players proved to be more resilient than others, according to The Boston
Consulting Group's sixth annual report on creating value in banking. The
report, titled "Creating Value in Banking 2008: Managing Shareholder Value
in Turbulent Times," is being released today.
Overall, the banking sector's average total shareholder return (TSR)
plummeted by 93 percent in 2007, to 1.7 percent, and was well below the
15.2 percent average TSR of all industries, according to the report. The
sector's market capitalization increased by a mere 2.4 percent to $8.3
trillion -- a stark change from 2006, when market cap growth topped 31
percent.
Among the ten major developed markets, the U.S. banking industry posted the
second-lowest TSR in 2007, at 21 percent -- a drop of 41 percentage points
from 2006. U.S. banks' five-year TSR ranked last, at 8.7 percent.
Since the end of 2007, shareholder returns in the banking industry, in
general, have deteriorated rapidly: in less than three months, the sector's
market cap has dropped by more than 15 percent, to $7 trillion from $8.3
trillion.
A Year with Two Halves
Recent events, including the sudden collapse of Bear Stearns, have provided
dramatic evidence that the deepening crisis is both profound and pervasive.
Early signs of its impact, however, became increasingly visible last year.
Indeed, the report -- which analyzes a sample of banks representing more
than 75 percent of total banking market capitalization -- shows that 2007
was a year with two halves.
In the first half of 2007, the sector's market capitalization grew by 5.7
percent. In the second half, as the crisis became more widespread, banks
lost $269 billion in market value. "For the year, North American and
Western European banks together lost $695 billion of value -- more than the
GDP of the Netherlands," noted Eric Olsen, a BCG senior partner and
managing director, and a coauthor of the report.
A Huge Divide Between Developed and Emerging Markets
A gaping performance divide separated ten major developed markets from the
rest of the banking world. Banking TSRs in these developed markets fell to
an average of about 13 percent, while the average TSR outside these markets
was about 27 percent. Emerging markets, in particular, avoided much of the
turmoil and provided a counterweight to the weak performance of Western and
Japanese banks.
"Even by the unique standards of emerging markets, the growth of banking in
the BRIC countries -- Brazil, Russia, India, and China -- has been
astounding," said BCG senior partner and managing director Sunil Kappagoda,
another coauthor of the report. "Revenues of banks in BRIC countries were
fueled by the emergence of an immense middle class and strong underlying
economic growth."
The performance divide reordered the ranking of the world's biggest banks.
Three of the four largest banks, by market cap, were Chinese: ICBC, China
Construction Bank, and Bank of China. By comparison, the three largest U.S.
banks, which had dominated the ranking in previous years, lost ground. Four
of the seven new entrants in the 30 largest banks were from BRIC countries.
The upheaval has carried into 2008, with major U.S. and U.K. banks
continuing to lose substantial amounts of market value.
Placing TSR at the Center of Strategy
In an environment that is growing more turbulent and competitive by the
day, the report says, banks must place TSR at the heart of corporate
strategy. "Banks can gain more control over their destiny by fusing
financial, investor, and business strategy, and by focusing squarely on an
explicit TSR goal," Kappagoda said. "This approach differs from how many
banks develop their long-term strategies; TSR has traditionally been seen
as an outcome, rather than an input, of business strategy." The report
outlines steps that banks should take to develop an integrated, TSR-centric
strategy.
To receive a copy of the report or to schedule an interview with one of the
authors, please contact Eric Gregoire at +1 617 850 3783 or
gregoire.eric@bcg.com.
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