Last year, Europe’s 50 largest banks eked out €118.8bn in post-tax profits between them, according to the study.
While that was more than twice as much as five years ago, the improvement was solely driven by a reduction in litigation costs, restructuring expenses and provisions for bad loans. Excluding those one-offs, the aggregate operating profit in 2017 was €3.5bn lower than in 2013.
The banks’ average return on equity stood at 7.1 per cent – higher than the 3.9 per cent earned a year earlier but nonetheless significantly below their cost of capital, which Zeb estimated was around 8.5 per cent.
“Europe’s banks are still destroying capital,” said Florian Forst, a partner at Zeb.
If the current trajectory were maintained, return on equity would deteriorate sharply, the consultancy warned, dropping to around 4.2 per cent by 2022.
“The banks’ efforts to cut costs has not been radical enough, as it could not compensate [for] falling revenue”, added Zeb partner Ekkehardt Bauer.
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