Under tremendous market pressure created by the global pandemic, regulators and central banks around the world have reacted by implementing measures intended to help banks preserve capital. The question remains: can banks withstand the impact of COVID-19? Our Financials Equity Team summarizes their perspectives from their latest research report.
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For the latest original research and thoughtful perspectives from our research team, please visit RBC Insight.
Report Key Takeaways:
While uncertainty about the economic fallout of the pandemic remains, banks are in a better position to handle the downturn today than they were during the financial crisis.
In this report we examined the common equity tier 1 (CET 1) ratios, and the minimum ratios required by regional regulators. In Canada, the U.S., the U.K. and Europe the median CET 1 ratios are currently 11.5%, 11.2%, 14.8% and 13.0%, respectively. The median CET 1 ratios in these geographies (respectively) sit at 2.5%, 2.1%, 4.0% and 3.8% above their regulatory minimum/required ratio, indicating adequate ability to withstand financial distress, although the extent of the distress from COVID-19 is still unknown.
Many actions – some unprecedented – have been taken by regulators and central banks around the world to ensure global banks preserve capital and maintain liquidity access in the COVID-19 era. In some cases, banks are no longer required to automatically classify deferred loans as a result of COVID-19 as delinquent. Pending changes related to Basel III reforms have been postponed. In many geographies, measures have been taken to ensure banks have the capacity to offer financial relief and flexibility to individuals and small and medium-sized businesses to help them face this historic challenge.
Regulators have suspended common share dividends for large banks in the U.K. and Europe, but in the U.S. and Canada we see some banks publicly committing to continue paying them out. In general, Canadian banks have sufficient capital to guard against regulators mandating they halt dividend payments, and U.S. banks have strong enough capital ratios and low enough dividend payout ratios. However, if the U.S. is still in a recession in 2021 similar to the financial recession, banks may have to follow suit with the U.K. and suspend dividend payments in order to relieve financial pressure.
The RBC Financials Equity Team authored the report “Global Banks — Better Positioned to Handle Today's Turmoil than in 2008-09”. For more information about the full report, please contact your RBC sales representative.
For Required Conflicts Disclosures, click here. These disclosures are also available by sending a written request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7 or sending an email to rbcinsight@rbccm.com.
Jon Arfstrom
Equity Analyst
Jon brings over 20 years of experience as a research analyst to his coverage of financial services, including banks and consumer finance companies. Prior to joining RBC Capital Markets in 1999, he was a financial services research analyst at US Bancorp Piper Jaffray in Minneapolis. He was also a treasury manager for Graco, Inc. and a CPA for KPMG LLP, specializing in financial services companies.
Gerard Cassidy
Managing Director, Head of U.S. Bank Strategy
Gerard is responsible for providing bank and regional economic research to the firm's clients. Prior to joining our research department in 1988, he was employed by Unum Corporation as a senior bank analyst. He began his professional career with Gulf+Western Industries as a merger and acquisition analyst. Gerard is president and a member of the board of directors of the BancAnalysts Association of Boston, Inc. He is also a former member of the board of directors and secretary of the New York Bank and Financial Analyst's Association. Gerard is the creator of the Texas Ratio, a ratio used by investors to determine whether a bank could be insolvent.
Steven Duong
Equity Analyst
Steven Duong joined RBC Capital Markets research division in 2009 after a prior tenure with RBC’s investment banking team from 2000-2003. Between 2003-2007, Steven worked at S&P Global Market Intelligence (formerly SNL Financial LC) as the head of their online analytics platform and co-head of their Financial Institutions Group research division. Prior to joining RBC research in 2009, Steven was a partner in a real estate brokerage company in Panama. He currently covers the U.S. SMID-cap banking sector at RBC. Steven graduated magna cum laude from Rutgers University with a BA in political science and economics.
Darko Mihelic
CFA - Equity Analyst
Darko rejoined RBC Capital Markets in 2013 to assume coverage of the Canadian banks and life insurance sector. He has covered the Canadian banking industry since 1999 and the Canadian life insurance sector since 2006, and has been ranked highly in various industry surveys. In 2016, he was named a Top Gun analyst for his coverage of the Canadian banking sector and the Canadian life insurance sector in the Brendan Wood International survey. Darko began his career in equity research in 1999 as an associate on our financial services equity research team. From 2002 to 2013, he was an equity analyst at Blackmont Capital, CIBC and Cormark Securities. Darko completed his MBA at SDA Bocconi in Milan and is a CFA charterholder. He is a Managing Director of RBC Capital Markets.
Anke Reingen
Equity Analyst
Anke joined RBC Capital Markets in 2011 as a European banks analyst. She started as a banks analyst in 1999 and since then has covered European banks at Morgan Stanley, Lehman Brothers and Execution Noble. Anke holds a master's in business administration from Cologne University in Germany.
Benjamin Toms
ACA - Equity Analyst
Benjamin has worked at RBC Capital Markets since 2015 and is responsible for the coverage of UK banks (BARC/CBG/CYBG/HSBC/LLOY/MTRO/OSB/PAG/RBS) and large cap Spanish banks (BBVA/SAN). He has previously worked at Barclays, and at Deloitte where he was an accountant in financial services specialising in the valuation of derivatives. Benjamin holds an MA in Law from Oxford University (St Edmund Hall) and is a qualified ACA Chartered Accountant.
