In a report on Monday, the Boston Consulting Group stated that global banks have the potential to increase their combined valuations by $7 trillion in the next five years by adopting significant measures to enhance growth and productivity. The consultant noted that by pursuing growth and improving price-to-book ratios, banks could potentially double their current valuations, despite facing obstacles. BGC highlighted the substantial decline in profitability as the primary driver of pessimism about the banking sector.
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In 2022, approximately 75% of bank stocks exhibited price-to-book ratios below 1, and price-to-earnings multiples were nearly half of the 2008 levels. Concurrently, shareholder returns on bank stocks have consistently fallen behind those of major market indexes since the crisis, and this disparity is expanding.
Despite potential investments in productivity and significant business simplification, bank profits are expected to face sustained pressure due to elevated capital requirements and intensified competition from emerging players like fintechs, as highlighted by BCG.
The consultant stated that it is unlikely for banks to revert to the levels of profitability and valuations observed before the global financial crisis.
