Global Banks Could Double Valuations, Says BCG

A new Boston Consulting Group report (BCG) report suggests that global banks can potentially increase their combined valuations by $7 trillion over the next five years. 

This significant boost could be achieved through strategic measures promoting growth and enhancing productivity.

Doubling Current Valuations Through Growth and Improved Ratios:

BCG proposes that banks could approximately double their current valuations by actively pursuing growth strategies and improving their price-to-book ratios. 

Despite challenges, the report indicates that such measures could contribute to a substantial increase in the overall valuation of global banks.

Profitability Challenges in the Banking Sector:

The report identifies a significant drop in profitability as a key driver of pessimism in the banking sector. 

Approximately 75% of bank stocks had price-to-book ratios below 1 in 2022, and price-to-earnings multiples were nearly half of 2008. 

Shareholder returns on bank stocks have lagged behind major market indexes since the financial crisis, with the gap widening.

Obstacles and Pressures on Bank Profits:

BCG acknowledges that even with investments in productivity and streamlined business models, banks will face ongoing challenges to profitability. 

Higher capital requirements and increased competition from emerging players, including fintech firms, are expected to pressure bank profits. 

The report suggests that returning to pre-financial crisis profitability levels and valuations is unlikely.