How Pricing Can Solve European Banking’s Earnings Crisis
Report

How Pricing Can Solve European Banking’s Earnings Crisis

Carsten Baumgärtner, Stefan Bochtler, Amadeus Petzke and Ian Wachters
Boston Consulting Group, 2018
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Editorial Rating

8

Qualities

  • Analytical
  • Applicable
  • For Experts

Recommendation

Because their costs exceed their revenues, European banks have seen negative returns since 2012. While they focus on restructuring to meet increasingly stringent regulatory requirements, these institutions have not revised their pricing to sustain profitability. According to professionals at the Boston Consulting Group, dynamic and data-driven pricing models present an opportunity to bolster the bottom line and mitigate the adverse effects of regulation. getAbstract suggests this astute technical analysis to financial executives for its diagnostic insights.

Summary

European banks’ average cost of equity in 2016 was 12.8% against an average return of 4.1%, marking the fourth year in a row of losses. Their sorry state contrasts markedly with that of their North American counterparts, which have seen their expenses decline over the 2012–2016 period. Persistently high costs and weak revenue in the euro area have compressed margins.  

A growing body of regulatory changes under Basel III – including “higher core capital requirements, caps on leverage” and numerous new rules on derivatives – has contributed significantly to compliance costs...

About the Authors

Carsten Baumgärtner et al. are professionals with the Boston Consulting Group.

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