The post-crisis clean-up of bank balance sheets has borne fruit across Europe, as capitalisation remains strong and high asset quality cushions profitability. Bank fundamentals have improved over the past couple of years, as has the level of systemic risk in smaller European economies. In S&P Global Ratings’ 2018 risk assessment, most of the negative outlooks are linked to specific situations such as Danske Bank’s money-laundering allegations and BBVA’s impairment charges in Turkey.
Across Europe, most banks still struggle with profitability, throwing into question the long-term sustainability of their business models. While there is no cause for immediate alarm, the lacklustre earnings reports hardly make a compelling case for shareholders or prospective investors. Investment banking from European players overall remains well behind the results of US peers. Some banks have done well to cut costs, notably Credit Suisse and UniCredit, but it is difficult to transform this into an effective long-term strategy.
