It is pretty safe to say that companies and consumers feel the pain of COVID-19, but according to Buy Shares, global banks feel the pain too, to the tune of more than half a trillion dollars in market cap.
- The coronavirus pandemic has brought a lot of strain to the banking and entire financial market sector, causing unprecedented loss. The full picture of the losses is well exhibited when comparing the market capitalization in the course of the pandemic.
- Data presented Buy Shares indicates that 14 selected major global banks cumulatively lost $635.33 billion in market capitalization between December 2019 and August 2020.
- America’s Wells Fargo was the biggest loser with a percentage change in the market capitalization at -56.26%, followed by Spain’s Banco Santander at -46.16%.
- During the period, Japan-based Mizuho Financial Group had the least change at -11.33%.
JPMC lost $132 billion in market capitalization according to the article, but it still stands strong:
- JP Morgan still holds a superior market capitalization at $437.2 billion in December 2019 and $305.44 billion as of August 2020.
- Bank of America fell $94.8 billion in market cap
- In China, ICBC lost $74 billion in market cap, followed by China Construction Bank at $41 billion, and Agricultural Bank lost $35 billion in value.
- In France, BNP Paribas lost almost $20 billion in value, while the Credit Agricole Group fell by $12 billion.
Thank heavens for CECL and IFRS9.
- Banks went into the pandemic stronger, and it might take time before they return to normal profitability. The pandemic led to a slump in various sectors of the economy, and it was evident under the stock markets.
- The crisis generated massive instability and high volatility in global capital markets. The financial sector was among the most impacted, leading to a drop in market capitalization.
- The drop in valuations for the selected banks could have been much worse if there was no intervention from central banks. The immediate measures taken by regulators to ease restrictions on liquidity and capital, banks have proved beneficial.
There’s more to come as the pandemic persists. Perhaps a model change is in order?
- Banks will need to adapt to a new customer norm with new business models as well as rethink what drives brand loyalty. Restructure the addressable market to grow beyond the core. Most importantly, banks will need to validate long-standing business assumptions. Long-held assumptions that have underpinned the banking business model may vary.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group