Europe’s leading banks have made significant strides in closing the gap with their US counterparts over the past year, primarily fueled by a surge in interest income, as noted by EY partner Ralf Eckert.
Eckert highlighted that European major banks were able to disproportionately benefit from the substantial rise and normalization of interest rates, enabling them to boost their profits more than American institutions. This resulted in a remarkable 29 percent increase in net profit for the top ten European banks, reaching nearly 100 billion euros ($112.2 billion), marking the highest value seen in the past decade. In contrast, the top ten US banks recorded a more modest increase of around four percent, with a total net profit of approximately 146 billion euros ($164.1 billion).
Among these institutions, JPMorgan Chase emerged as the leader in corporate results, reporting a net profit of almost 45 billion euros ($50.6 billion), closely followed by UBS, the Swiss major bank, which reported profits exceeding 26 billion euros ($29.2 billion).
For the first time in a full year, European major banks were able to match the profitability of their US counterparts, with a return on equity (RoE) of 10.9 percent for the European banks compared to an unchanged eleven percent for US institutions. RoE measures a company’s efficiency in utilizing its equity to generate profits.
While both US and European banks benefited from increased interest income, US institutions faced greater challenges due to declines in business areas such as initial public offerings (IPOs) and mergers and acquisitions (M&A), which are more significant components of their operations compared to European banks.
Despite the progress made by European banks, US heavyweights still maintain a significant lead in terms of market capitalization. As of December 31, 2023, the total market capitalization of the top ten US banks stood at approximately 1.32 trillion euros ($1.48 trillion), while that of the top ten European banks was around 551.6 billion euros ($620.5 billion).
As of March 15 of the current year, the market value of leading European institutions saw a marginal increase of two percent to 560 billion euros ($630.5 billion), while their US counterparts experienced a more substantial eight percent increase to 1.43 trillion euros ($1.61 trillion), further widening the gap between the two regions.