Banking
Banks build capital, see investors favor others – study
Published by maria gbaf
Posted on December 2, 2021
2 min readLast updated: January 28, 2026
Global Banking & Finance Review®
Company
Published by maria gbaf
Posted on December 2, 2021
2 min readLast updated: January 28, 2026
Banks increased capital during the pandemic but saw a drop in return on equity, losing favor to growth industries, according to McKinsey.
By David Henry
NEW YORK (Reuters) – The global banking industry built up capital and showed its stability during the pandemic but its return on equity plunged and it has lost favor with investors to industries with more attractive growth prospects, according to a new study.
“Banks withstood the pressures of 2020, and capital reserves rose last year. But it came at a cost,” consulting firm McKinsey said on Wednesday in its annual banking review.
Return on equity for banks in North America fell to 8% in 2020 from 12% in 2019 and halved for European banks to 3% from 6%.
“The industry became safer, more predictable, more commoditized,” the report said.
Investors now value banks as though they were utilities. Banks trade around 1.0 times book value compared with 3.0 times for all other industries, the report said. The discount was less a decade ago, about 1.0 times versus 2.0 times.
The disparity comes even after the industry’s stock market value increased 20% to October 2021 from the month before the pandemic.
That reflects a banking outlook that is “decent and resilient, but not attractive,” said McKinsey.
Return on equity could increase from 6% to between 7% and 12% in 2025, largely depending on changes in interest rates, government economic support and how much cash is piled onto balance sheets.
The banks that will fare better than peers, the consultants said, will be those that move quickly toward businesses that earn fees and require less capital, such as payments, wealth management and investment banking.
(Reporting by David Henry in New York; Editing by Mark Potter)
The article discusses how the banking industry built capital during the pandemic but lost favor with investors to other industries.
Banks increased their capital reserves but experienced a decline in return on equity, with North American banks dropping to 8%.
Future growth in banking could be influenced by changes in interest rates, government economic support, and cash reserves.
Explore more articles in the Banking category
