What are bank executives discussing on earnings calls?
Top themes from 2Q 2012
Our analysis of the leading issues emerging from the quarterly earnings calls of the largest global banks identifies what's top of mind for banking leaders. The top 10 themes from 2Q 2012 are listed below and compared to the themes from 1Q 2012.
Following the trend of the last several quarters, 2Q12 continued to be defined by the state of the macro-environment. Ongoing concerns about the Eurozone, coupled with slowing — or stalled — global economic growth, impacted banks across all regions and business models.
While some banks, particularly those with a retail focus in more stable markets, fared well despite the environment, most banks continued to suffer as uncertainty and volatility impacted client volumes and revenues.
2Q 2012 earnings quarter top 10 themes
(listed from most common to least)
|2Q12 rank ||Change ||1Q12 rank |
|Concerns related to the macro-environment ||1.1 ||▬ ||1.1 |
|Capital issues ||1.2 ||▬ ||1.2 |
|Drivers of earnings performance ||1.3 ||▬ ||1.3 |
|Expense trends/investments in the business ||1.4 ||▬ ||1.4 |
|Lending trends ||5 ||▲ ||9 |
|M&A strategies ||6.1 ||▲ ||10 |
|Credit quality trends ||6.2 ||▬ ||6.2 |
|Regulatory issues ||8.1 ||▼ ||5 |
|Commitment to international operations ||8.2 ||▼ ||6.3 |
|Funding strategy and liquidity management ||10 ||▼ ||6.1|
Top themes from 2Q 2012 bank earning calls
- Macro headwinds intensify again
- The improvements to the macro environment that were evident in the early months of 2012 turned out to be largely temporary, as management had predicted during the 1Q12 earnings season. During 2Q12, the global economic environment deteriorated, concerns related to the Eurozone resurfaced and the effects of the European Central Bank's (ECB) long-term refinancing operation (LTRO) proved to be short-term.
- Management in all regions expressed pessimism about the outlook for the rest of 2012, although in Europe, a number of bank executives acknowledged that the political will to act on Eurozone problems is strengthening.
- “We are confident there exists a political resolve to solve euro structural issues. However, in the near term, we expect activity levels to remain low and the interest income headwind will persist.”
- – Stefan Krause, Deutsche Bank CFO
- Banks report progress with Basel III capital rules
- In 2Q12, banks highlighted their continued capital strength and ability to comply with upcoming Basel III rules and various local jurisdiction requirements. The ability to maintain high capital levels — even in the face of increasingly stringent requirements — can be attributed to internal decisions about how to deploy and reallocate capital, as banks remain unable to influence the outcome of external pressures.
- “We already meet the Basel III capital requirements, which become effective in the first quarter of 2013 for Canadians and 2019 for the rest of the world. Our estimated Basel III pro forma Tier 1 capital equity ratio is 8.3% based on our current interpretation of the rules, which of course, have yet to be finalized.”
- – Gord Nixon, Royal Bank of Canada CEO
- Banks comment on local capital guidance
- During 2Q12, regulators in several countries provided capital guidance to banks. Management addressed the guidance, detailed measures they had taken to allay regulators' concerns about capital adequacy and adopted a largely cooperative stance on complying with national capital rules.
- “Independent analysts and independent experts have confirmed the very sound capital situation in BBVA, i.e., the IMF and the experts evaluating the Spanish system. And we've done even better than we did in the previous stress tests in Europe, and we definitely do not have any further capital requirements.”
- – Ángel Cano Fernandez, Grupo BBVA COO
- Net income dented by extraordinary items
- In 2Q12, with a few exceptions, revenues and net income reflected the impact of external headwinds and the strength — or weakness — of the regions in which banks operate. When compared to 2Q11, revenues increased at 13 banks, but net income grew at only eight banks. Sequentially from 1Q12, 11 banks reported stronger revenues and 12 reported improved earnings.
Download our 2Q 2012 bank earnings calls report for details about these themes and to read about other top themes.