The CEO of Switzerland’s largest bank offers the clearest reason to shun European financials
The CEO of UBS, Sergio Ermotti, delivered the clearest indictment yet of Europe’s embattled banking system on Thursday — at least from an investor standpoint.
The head of Switzerland’s largest bank, and among the world’s heavyweight financial institutions, said European financial institutions are suffering from a world awash in low and negative interest rates.
“The environment isn’t very constructive for banks. Low rates, negative rates are putting a lot of pressure on our profitability,” he said during a CNBC interview.
His comments highlight the degree to which the European banking system is floundering. Europe’s banking index, the Euro Stoxx Banks F7X, +1.15% has lost a quarter of its value in 2016, with some of the worst constituents of the gauge showing withering year-to-date drops that make Deutsche Bank’s DB, -0.44% DBK, -0.29% recent slump look pedestrian. Italy’s Banco Popolare S.C. BP, -0.27% is down a whopping 75% this year and its sister Unione di Banche Italiane S.p. A UBI, +1.21% is down 64% year to date.
Comparatively, U.S. banks, although not setting the world on fire with their own yearly performance, are trouncing their European counterparts on a relative basis. Two indicators of U.S. bank performance are solidly in the green. The Financial Select Sector SPDR ETF XLF, +0.15% is up 1.5% for the year while the SPDR S&P Bank ETF KBE, +0.09% as the U.S. Federal Reserve inches toward a normalization of monetary policy. That is a boon to banks whose business models are based on the difference in their short-term borrowings and the long-term loans they offer customers.
Like his Deutsche Bank peer John Cryan, Ermotti blames much of the problems besetting European banks on the sluggish European economy.
“European banks are suffering because of the macroeconomic conditions of Europe. The lack of growth, low rates or negative rates are clearly putting a lot of pressures,” he said.
However, UBS’s UBS, -1.21% Ermotti does believe that the European banks have better capital positions than they did during the height of the 2008-09 financial crisis. “As a matter of fact the capital positions have been increased by seven, eight times in the past few years. In general, the banking sector is stronger than before.”
And as for Deutsche Bank’s problems, he described the issues with Germany’s largest banks as “one idiosyncratic situation,” referring partially to recent questions about Deutsche Bank’s ability to withstand a possible $14 billion fine from the U.S. Justice Department.
“I wouldn’t look at it as being a good proxy for the entire banking industry,” he said. But it’s the profitability of the banking system that is really in question.
“The head of Switzerland’s largest bank, and among the world’s heavyweight financial institutions, said European financial institutions are suffering from a world awash in low and negative interest rates.”
those damn low interest rates..bringing the whole world down eh?
“The environment isn’t very constructive for banks. Low rates, negative rates are putting a lot of pressure on our profitability,”
aww..heres a tissue..