Since the beginning of the year, European banks have been sailing with the tailwind of rising interest rates. This benefits not only their earnings, but also their share prices. For example, the European Stoxx bank index has gained 15 percent since the beginning of the year, while its American counterpart, the KBW index, has lost 18 percent. Although higher interest rates are also helping US banks, there were significant headwinds here with the difficulties of regional banks such as Silicon Valley Bank.

Markus Frühauf

Editor in business.

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If you only look at the ten largest banks, as the consulting firm EY has now done in a study published on Monday, the top European institutions show higher profit growth. According to EY calculations, the ten largest banks in Europe, including Deutsche Bank, significantly improved their cumulative net profit by 80 percent year-on-year to 75 billion euros in the first half of the year. The ten largest U.S. banks increased their combined net profit by 7 percent to around 82 billion euros in the first six months.

Special effect from Credit Suisse

According to EY, the interim balance sheet of European banks will be significantly influenced by UBS's one-off effect. After the takeover of domestic competitor Credit Suisse, the net profit of the major Swiss bank increased almost sevenfold to 27.4 billion euros in the first half of the year. Adjusted for this, UBS would have achieved a net profit of just under 2 billion euros in the first half of the year, according to EY.

This also reduces the interim balance of the major European banks, whose net profit would then amount to only 49.3 billion euros. Nevertheless, with profit growth of just under 19 percent, they would still be ahead of their US competitors.

More profitable than U.S. banks for the first time

With the one-off effect of the Credit Suisse acquisition, the return on equity of European banks rose to 30.15 percent as of June 5, almost 6 percentage points more than twelve months earlier. According to the EY consultants, profitability reached by far its highest level in the past ten years. For the first time in this period, it was also higher than that of the top American institutions. Their return on equity was 12.6 percent at the end of July.

Switzerland's UBS also earned the most in the first half of the year with 27.4 billion euros. It is followed by J.P. Morgan Chase, the largest American bank, with 24.8 billion euros. It is also the bank with the highest market capitalization: 392 billion euros as of August 31. This is followed by Bank of America with 210 billion euros and Wells Fargo with 139 billion dollars. In fourth place is the first European address, the British-Asian HSBC with 133 billion euros. In comparison, Deutsche Bank remains a lightweight with a good 20 billion euros.

"In recent months, Europe's major banks have benefited significantly from the European Central Bank's interest rate hikes and the associated expansion of the interest margin, as have their US counterparts," said Ralf Eckert, Managing Partner for Financial Services at EY. The development of interest rates has more than compensated for the negative effects of the Ukraine war, inflation and stagnating economic growth in Europe.

More stable economy in the USA

In addition to the crisis in the US regional banks, the turbulence in the technology sector and the continued weakness of the IPO and takeover business have slowed down the top American institutions, added Robert Melnyk, Partner and Head of Banking & Capital Markets at EY.

In Eckert's view, further developments depend on the monetary policy of the central banks and the economy. He continues to rate economic growth in the United States as robust. For Eckert, there is no sign of a weakening. On the other hand, the economy in some large EU countries, such as Germany, is stagnating with still considerable inflationary pressures. European banks are likely to feel the effects.