Global top 25 banks posted substantial market recovery in Q4 2020, says GlobalData

Top global banks ended 2020 on a high, with aggregate market cap growing by 25.4% from $2,597.1bn, as of 30 September 2020 (Q3 2020), to $3,258bn, as of 31 December 2020 (Q4 2020), says GlobalData, a leading data analytics and research company.

Apart from the top four Chinese banks, which registered single-digit growth, all other global banks grew substantially in double digits, with the most notable being Charles Schwab, Morgan Stanley, BNP Paribas and Citigroup, whose market cap grew by over 40% q-o-q, respectively.

Parth Vala, Company Profiles Analyst at GlobalData, comments: “One of the prominent reasons for buoyant investor sentiment in the US banking sector was that the Federal Reserve allowed large banks for dividend payments and limited share buy backs in Q1 2021. This was granted for the first time since the COVID-19 downturn and post positive second stress test results.”

Charles Schwab’s share price grew 113.2% q-o-q. Surge in the company’s stock price since Q3 2020 can be attributed to better-than-estimated Q3 2020 results; the high-profile acquisition and integration of TD Ameritrade, which enabled it to expand its client assets portfolio over $6 trillion; and growth in its asset management business.

Morgan Stanley’s shares grew 62.6% as the company posted impressive results in Q3 2020, with institutional securities, wealth management and investment management reporting better revenues than Q3 2019. The acquisition of E*TRADE Financial and signing of definitive agreement to acquire Eaton Vance also created positive sentiments among its investors. In addition, after getting a green signal from the Fed, the company announced its plans to kick-off $10bn share repurchase program that also got validation from investors.

BNP Paribas was back in the top 25 with market cap gain of 45% over the previous quarter. Substantial increase in currency and commodity trading volumes and lower-than-expected loan loss provisions helped the bank beat Q3 2020 estimates. Its corporate and investment banking division revenue rose 16.4% for the nine months ending 30 September 2020, led by 25.8% growth in global markets, 11.1% increase in corporate banking and 5.6% rise in securities services businesses.

Citigroup’s market cap grew by 43% q-o-q. It also beat its Q3 earnings estimates with net income of $3.2bn, which was driven by strong performance in Institutional Clients Group segment – especially in investment banking, markets and private banking activities.

As compared to other global banks, the top four Chinese banks reported a rather tapered growth in their market cap in Q4 2020.

Vala comments: “Financial regulators in China have asked banks to lower their profits and facilitate cheap lending to struggling businesses and deferring loan repayments, which seemed to have affected the stock momentum of larger banks”. As a result, commercial banks in China have reported a net profit of CNY1.5 trillion as of 30 September 2020, reflecting a decline of 8.3% y-o-y.

“Despite mass vaccination on the horizon, 2021 still poses a great uncertainty to the global banking sector amid precariousness of virus trajectory, along with the low-interest-rate environment continuing to put pressure on margins, and potential increase in credit costs in light of  gradual decrease in government support measures”.

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