This week the financial press carried a bizarre and fascinating tale of intrigue between the two big Swiss banks, UBS and Credit Suisse. The story circles around a spat between former colleagues, cocktail party fights, a tragic suicide and private investigators, and ends with Credit Suisse's chief operating officer losing his job.
This contradicts the sedate, respectable and unadventurous image cultivated by Swiss bankers. Of course, personal factors are involved. Even so, there is pressure building on all European banks to maintain a successful business. And the Swiss intrigue may serve as a telltale example of how that pressure plays out. The simple reality is that Europe's banks are struggling. European Central Bank Vice President Luis de Guindos discussed the low profitability of banks in a keynote speech last June. The data that stands out is that European banks' return on equity is around 6 percent, while their cost of capital is around 8 to 10 percent. You don't need to be a math or business whiz to see how that is unsustainable.
The ECB maintains that its monetary policy is not the cause. Banks unable to make money on deposits in a negative interest rate environment are making it up on larger loan spreads, according to ECB officials. Guindos puts most of the blame on inefficiencies in the banks that are keeping operating costs too high.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Now accepting scholarship apps Celebrating 40 years of service -- A loan to an innovative company -- Affording your dream home -- Mergers and a new branch in Raleigh View this email in your browser Forward to a friend