European banks miss out on global revival

Banks around the world are in profit for the first since the financial crisis—except for in Europe, according to a new report by Boston Consulting Group (BCG).

Bear and bull statues are pictured in front of the Frankfurt Stock Exchange in Frankfurt, Germany.
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Financial institutions posted an average economic profit (EP)—which differs from accounting profit in that it also deducts opportunity cost —of 18 billion euros ($22 billion) last year, with banks in North America, the Middle East, Africa, Asia-Pacific and South America all in the black, the global management consultancy firm said on Tuesday.

According to BCG, 2013 was the first year since 2007 that banks across the world had regained overall profitability on average.

Success stories in 2013 included Goldman Sachs, which reported net earnings of $8.0 billion—up from $7.5 billion in 2011.

Overall, the average was dragged down by banks in Europe, however, which continued to post losses.

"In Europe, and only there, banks continue to show little sign of recovery," said analysts led by Gerold Grasshoff, a senior partner in BCG's financial institutions practice.

"In the medium term, refinancing costs are likely to rise in Europe, as European Central Bank policy may shift. In order to escape persistent negative EP, European banks should focus on either the top line or the operating-cost base."

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Major banks that posted losses last year included the U.K.'s part state-owned Royal Bank of Scotland. It reported a pre-tax loss for 2013 of £8.2 million ($12.8 million).

Neither Goldman nor RBS included economic profit or loss figures in their earning releases.

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The financial crisis of 2007/08 caused sharp reductions in global trade, economic growth and corporate and sovereign access to finance. As a result, governments in both the U.S. and Europe took emergency action to prevent a collapse of their banking systems.

The legacy of the crisis continues to weigh most in Europe. The 18-member euro zone posted seasonally adjusted economic growth of only 0.2 percent between July and September this year, while the broader European Union grew by just 0.3 percent.

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In October, the European Central Bank announced that 25 European banks had failed "stress tests" designed to ascertain whether the region's banking system could withstand another crisis. Italy's Monte dei Paschi dei Sienna had the largest capital hole to fill, at 2.1 billion euros ($2.61 billion).

On Tuesday, Grasshoff noted that banks had entered a "new era" in which "every region, product and legal entity will be closely regulated".

"This is not a one-time phenomenon. Hyperregulation is here to stay," he said.