Dimon Avoiding Davos Limelight After $23 Billion In Fines
Investors have favored the shares of U.S. lenders. The KBW Bank Index of 24 U.S. banks rose 35 percent in 2013, compared with the 19 percent gain by the Bloomberg Europe 500 Banks and Financial Services Index. New York-based Goldman Sachs Group Inc., the fifth-largest U.S. bank by assets, rose 39 percent, while Bank of America Corp., the second-biggest U.S. lender, gained 34 percent and JPMorgan rose 33 percent.
Europe's biggest bank, London-based HSBC Holdings Plc, Banco Santander SA, Spain's largest lender, and Deutsche Bank rose less than 10 percent. Investor confidence is reflected in the valuations of European banks, which trade at an average 1.2 multiple of tangible book value compared with 1.9 times for U.S. banks, the bank indexes show.
Bank profitability is well below pre-crisis levels, increasing pressure for cost cuts. The average return on equity for the top eight securities firms—Goldman Sachs, JPMorgan, Deutsche Bank, Citigroup Inc., Morgan Stanley, Bank of America, Barclays Plc and UBS—was 4.2 percent in the third quarter, according to data compiled by Bloomberg. Deutsche Bank posted a negative return of 0.9 percent, the data show.
Banks are struggling to increase revenue and profits amid sluggish economic growth and rules that limit profitability, including new capital requirements approved by the Basel Committee on Banking Supervision, restrictions on commodities trading and the Volcker Rule in the U.S. that seeks to curtail banks' bets with their own money.
"Some of the business models are still not viable, particularly in corporate and investment banking," said Henrik Naujoks, Frankfurt-based head of the financial services practice for Europe, Middle East and Africa at consulting firm Bain & Co. "In the past six months, we've received lots of requests from banks to assist them in becoming more client-centric, and it comes as banks are fighting to restore their reputation and secure their top line."
Among bank leaders in Davos this week are Standard Chartered's Sands and Bank of America CEO Brian Moynihan, who will be participating in a panel discussion on Wednesday about the global financial outlook. They'll be joined by Herman Gref, chairman and CEO of OAO Sberbank, Russia's biggest bank.
Sands, 52, is coming to Davos after scrapping his company's target of achieving a minimum 10 percent in annual revenue growth. The stock dropped 14 percent last year. Moynihan, 54, whose bank quadrupled profit in the fourth quarter, resolved disputes tied to home loans and foreclosures. Charlotte, N.C.-based Bank of America's stock reached the highest in more than three years.
Michael Corbat, 53, CEO of Citigroup, the third-biggest U.S. bank, and Morgan Stanley CEO James Gorman, 55, both of whom will be in Davos, aren't participating in any panels. Goldman Sachs CEO Lloyd Blankfein, 59, will join billionaire Wang Jianlin, head of Dalian Wanda Group, the Chinese company that controls U.S. movie-theater chain AMC Entertainment Holdings Inc., in a session titled "China, Europe, U.S.: The Co-Opetition Challenge."
Wednesday's panel, entitled "Are Markets Safer Now?" will pit Admati, who's making her first appearance at the annual meeting, against Barclays CEO Antony Jenkins, HSBC Chairman Douglas Flint, and Paul Singer, founder of New York-based hedge fund Elliott Management Corp. Singer last year accused the financial industry and some individual banks of still being too big, too opaque and too indebted.
The road to rebuilding confidence in banking will take at least a decade, Jenkins, 52, said on BBC Radio 4's Today program on Dec. 31. He declined to comment for this article. The executive is returning to Davos amid an overhaul of the bank that includes closing a profitable operation that helped wealthy individuals and businesses cut their tax bills.
"These people before were the masters of the universe," said Crispin Odey, founding partner of London-based Odey Asset Management LLP, which oversees $11.6 billion. "They feel that they are the butt of every regulatory change. They don't feel in control of the situation. They feel like they find businesses where they can make easy money, and then the regulators tell them they can't do it anymore."