Banks braced as pandemic poses biggest test since financial crisis

 Date: Mon, 10 Aug 2020


Source: Financial Times []


Author: Stephen Morris, Owen Walker and Laura Noonan


Sergio Ermotti remembers sitting in his home study in Lugano during the coronavirus crisis in late March , reflecting on the latest financial meltdown to engulf his career as a banker.


“If I go through my last eight years, we had a lot of mini-earthquakes, but never of the magnitude of what we are seeing now,” the 60-year-old UBS chief executive says. “This is a crisis that is driven by fear in a different way . . . this time it’s not just about people losing their assets or savings, it’s about their life, it’s about their families. It’s so profound, so different.”


Switzerland’s largest bank is weathering the crisis relatively well, with its share price down by only 10 per cent this year, a more modest fall than any other global lender apart from Wall Street’s Morgan Stanley.


This is no accident. Both banks have robust wealth management teams that boast more than $2tn of client assets, generating consistent fees from the wealthy and super-rich desperate for advice on how to trade the pandemic.


On the other hand, the rest of the industry — particularly those focused on bread and butter lending to small businesses and consumers — are facing their toughest obstacle yet since the financial crisis of 2008, as untold millions of companies face bankruptcy amid unprecedented global lockdowns and travel bans.


Governments and regulators have put forth trillions of dollars of support measures to sustain the system, ensuring the flow of credit and functioning of markets, and helping households stay afloat with salary supports and repayment holidays. But many of those schemes are set to be withdrawn.


Meanwhile, interest rates that were already negative in the eurozone have been slashed to zero in the US and 0.1 per cent in the UK, piling pressure on banks’ already slim lending margins.

For the smallest and weakest still struggling to recover from the cataclysm 12 years ago, coronavirus could prove fatal. For the biggest, it portends a period of hand-to-mouth survival — weak profits, no dividends and much lower, or no, bonuses — at a time when most investors had already turned bearish.


As ever, Europe’s banks have suffered far more than their US rivals, which have fatter profits to see them through leaner years. Navigating the disruption has been complicated by up to 90 per cent of staff working from home for months on end.


“For the large national banks, facing zero interest rates into the foreseeable future and the significant credit exposure, how can one be confident?” asks Bob Diamond, who ran Barclays during the last crisis. “Please explain to me where earnings are coming from?”

Keyword :, Sterling House Trust, SHT