IMF Identifies Nine Big Banks Likely to Struggle With Profitability

Projects Deutsche Bank, Citi, Barclays and others could deliver subpar profits by 2019

The International Monetary Fund said some of the world’s largest financial institutions—including Deutsche Bank , DB -0.38% Citigroup , C +0.05% Barclays BCS -0.36% and a few Japanese institutions—could struggle in coming years to remain sufficiently profitable.

“About a third of banks by assets may struggle to achieve sustainable profitability, underscoring ongoing challenges and medium-term vulnerabilities,” the IMF said, referring to the world’s most important financial institutions.

 The report named nine financial institutions in all—

  1. Barclays BCS 
  2. Citigroup, 
  3. Société Générale , SCGLY -0.43% 
  4. UniCreditUNCFF -0.54% Group,
  5. Deutsche Bank, Barclays, 
  6. Standard Chartered , STAN -0.30%
  7. Sumitomo Mitsui Financial Group , SMFG +0.25% 
  8. Mizuho Financial Group MFG +0.00%and 
  9. Mitsubishi UFJ Financial Group MTU +0.45% —

as likely to deliver subpar profits.

 

.. “Institutions that are not profitable might not be able to generate enough capital in the future should adverse shocks hit,” Tobias Adrian, the director of the IMF’s monetary and capital markets department, told reporters. “It might become a financial stability risk not to be profitable.”

.. The IMF said the consensus among private-sector bank-industry analysts was for a return on equity of less than 8% for each of those nine banks in the year 2019.

.. Deutsche Bank’s stock, for example, trades at less than half of its book value, or net worth, and has traded well below this level since 2010.

Analyst on Visa and Mastercard: ‘Simply the Best Businesses We’ve Ever Seen’

Buckingham Research analyst Chris Brendler thinks there’s plenty that investors still underestimate about the two card companies, which he calls “simply the best businesses we’ve ever seen.” Visa and Mastercard have significant pricing power and are proving to be consistently resilient against up-and-comers in the payments landscape. And they’re poised to keep growing volume and earnings as they further eat into cash and check usage

.. For the most part, Visa and Mastercard have made it so that every relative newcomer in payments has to go through them. The companies struck deals with PayPal, for instance, so that the service would stop dissuading users from funding transactions with their credit cards. And while Apple Pay and other similar mobile-wallet services haven’t really taken off, Visa and Mastercard are well-positioned in case they do, since these tools rely on credit and debit cards, too.

How the Knights Templar became the world’s first financial-services company

Originally founded as the Knights of the Temple of Solomon to protect pilgrims traveling to Jerusalem, the Templars became the most powerful military order of the Crusades. But in addition they were economic trailblazers and banking pioneers during the 12th and 13th centuries. “I don’t think it’s facetious to say the Templars were an incredibly sophisticated organization with rudimentary business practices and financial methods that you would want any business to emulate,”

.. The Templars are known for the drama of their downfall or their role as medieval special forces. But they had a vast business and commercial empire, with lands generating agricultural produce and revenue all the way from Ireland to Cyprus and the Crusader states. They owned property in big cities which was rented out and chartered shipping in worldwide ports.

Then there was the banking side of things. It’s sometimes said the Templars were the world’s first bankers. There was a system of banking of deposits — King John of England deposited the crown jewels with the Templars in London when he was in trouble before the Magna Carta. But that doesn’t do them justice. They weren’t the first world’s bankers. They were providing the world’s first financial-services company.

 .. They were paying royal officials there on behalf of the crown and running the books for the French King, his brothers and mother. They were collecting, on behalf of the Pope, the crusading taxes levied by the church in England, France, Hungary and parts of Spain and Italy.Their spread of properties all across Europe and presence in just about every kingdom made them unique. They crossed boundaries and weren’t subject to the authority or polices of any particular king. They were tax exempt in many jurisdictions across Europe. If you think about the deal between Google and the Irish government, the Templars had that times 20.

.. Alfonso I, the King of Aragon, left them a third of his kingdom in his will and Queens and Kings gave them huge landed estates. They were also the recipients of popular donations, what today we would call crowdfunding. People left them in their wills a donkey or a little plot of land, tiny donations that when you added them up were massive and funded military operations.

.. If you were a young guy who wanted to go to war and fight for God, you could join the Templars. If you were an old guy who wanted to atone for a sinful life but was no good for fighting, you could join and run the books in a regional Templar house. If you didn’t wish to join but wanted to accrue the spiritual benefits of involvement, you could donate. They had what today in business terms would be called amazing international branding. The white mantle, the red cross. It’s the Nike swoosh, the McDonald’s arches, the Apple logo of the day.

.. They embraced diversity. Although they were a militant Christian organization, they were flexible and pragmatic like in the East where they hired as soldiers Turcapole Syrian cavalry, who happened to be Muslim, as they were much better at fighting in the conditions.