World's Top Banks Face Financial Difficulty, MCap Declines 6.7% in July-September 2022; Details Here

ICICI Bank, HSBC, China Merchants Bank MCap: At a time when the world is facing rising global inflation and market volatility, the aggregate market value of the top-25 global banks, including China Merchants Bank and HSBC, tumbled 6.7 per cent quarter-on-quarter to $3 trillion during July-September 2022, according to data analytics and research firm GlobalData. It added that global banking sector might face greater difficulties in the ongoing fourth quarter of 2022 due to the Credit Suisse crisis.

Murthy Grandhi, analyst (company profiles) at GlobalData, said, “While ICICI Bank, Bank Central Asia, and Charles Schwab gained the most during Q3 (of 2022), China Merchants Bank and HSBC witnessed a heavy slump in MCap (market capitalisation).”

Credit Suisse has been in news for the trouble it faces right now. Its share prices have fallen significantly and many have started comparing the fall to the Lehman Brothers collapse in 2008. The trouble at Credit Suisse involved high-profile risk management failures in the past and multiple changes in top leadership since 2020.

ICICI Bank

ICICI Bank beat analysts’ expectations and reported net revenue and profit after tax of Rs 17,880 crore and Rs 6,900 crore in Q1 FY2023 over Rs 14,930 crore and Rs 4600 crore in Q1 FY2022, respectively. “Healthy growth in loan book and improved asset quality enhanced the bank’s bottom-line. An increase in net interest margin, high yielding products, and cash-to-deposit ratio contributed to the share price rally,” GlobalData said.

Bank Central Asia

It added that improved asset mix and a solid current accounts and savings accounts (CASA) performance in Q2 2022 supported the rise in MCap by 15 per cent over the previous quarter. “Growth was propelled by improving business activities as well as the public mobility restriction relaxation.”

Charles Schwab

GlobalData said positive Q2 2022 results fuelled the share prices of Charles Schwab, which resulted in a 14 per cent rise in m-cap. A strong operating model resulted in a 31 per cent rise in net interest revenue on the back of higher market interest rates and growth in interest-earning assets. “Active brokerage accounts also increased 5 per cent year-over-year to reach 33.9 million as of June 30, 2022.”

China Merchants Bank

China Merchants Bank’s MCap slumped over 25 per cent primarily due to its governance issues, wherein it sacked its president without offering a reason, even as the bank registered satisfactory results over the period in a challenging macro environment, it said.

HSBC

HSBC’s MCap dropped by 21 per cent on the back of A €33.6 million fine levied by the European Commission for its breach of EU antitrust rules by participating in a drug alliance in euro interest rate derivatives.

China’s Big Four banks

China’s Big Four banks — ICBC, Bank of China, Agricultural Bank of China, and China Construction Bank — each lost more than 10 per cent in their MCap, owing to a property sector-induced dent in consumer and business confidence. The Chinese regulator made several interest rate cuts due to mounting pressure placed on banks to disburse more loans to revive the property sector, which in turn could impact profitability.

As of September 30, 2022, JPMorgan Chase had the highest market cap in the world with $306.9 billion, followed by Bank of America with $242.7 billion, ICBC with $219.6 billion, Wells Fargo ($152.6 billion) and China Construction Bank ($146.6 billion).

With respect to Indian banks, HDFC Bank and ICICI Bank are among the top-25 global banks with market caps of $97.1 billion and $73.7 billion, respectively. HDFC Bank currently stands at 16th rank in the top-15 banks in the world, while ICICI Bank at 20th during the September 2022 quarter. While HDFC Bank’s ranking has remained the same compared with the previous quarter, ICICI Bank has leaped 6 points as it was at 26th in the June 2022 quarter.

Grandhi said, “Global banking segment could face greater difficulties in the fourth quarter of 2022 because of Credit Suisse’s crisis, which was brought on by the bank’s poor investments in Greensill Capital and Archegos Capital as well as scandals like drug-related money laundering, which damaged the bank’s reputation and undermined investor confidence and caused its share price to plummet.”

He added that its rate on credit default swaps increased, which suggests that it may file for bankruptcy. Given that Credit Suisse is regarded as a global systematically important bank (G-SIB), all these changes could have a cascading effect on the banking industry. “Additionally, the continued increases in interest rates to combat inflation may trigger a possible worldwide recession.”

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