Following a steady run of strong growth, the global banking industry has experienced a massive loss in market value Boston Consulting Group (BCG).
"The market capitalisation of the global banking industry fell from $8.3 trillion at the end of 2007 to $5.7 trillion at the end of the third quarter of 2008," says Lars-Uwe Luther, BCG partner and coauthor of BCG's annual report on value creation in banking.
Luther says, "The crisis has wiped out nearly three years of growth in market capitalisation. The banking industry's market value is now close to where it was at the end of 2004."The decline started in 2007. In the second half of that year, as the crisis began to intensify, banks lost $269 billion in market value. In total, banks have lost nearly $3 trillion in market value since mid-2007."
The decline in market value corresponds with a sharp fall in stock market performance. Over the first three quarters of 2008, the industry's total shareholder return (TSR) plunged by 34 percentage points, to -32.5 per cent. It was nearly 60 per centage points below the precrisis average for 2006.
A global crisis
"The crisis, which began with a downturn in the US housing market, has reverberated in markets around the world," Luther said. "In nine of the 10 most developed markets, banks had double-digit negative TSRs over the first three quarters of 2008. Germany had the lowest banking TSR, at -45.1 per cent, while Canada had the strongest, at -6.6 per cent."
Even banks in developing markets, which had been relatively insulated from the turmoil in 2007, have seen dramatic falls in TSR. In the so-called BRIC countries-Brazil, Russia, India, and China-banks' TSR fell from an average of 50.0 percent in 2007 to -40.8 percent over the first three quarters of 2008.
"The crisis has also moved well beyond the banking sector," Luther said. In all industries-not just banking-TSR has fallen precipitously. The average TSR for all industries fell more than 42 percentage points-from 15.2 percent at the end of 2007 to -27.1 percent at the end of the third quarter.
The crisis has continued to shake up the hierarchy of the world's largest banks, measured by market value. Among the 30 largest banks, there have been several double-digit changes in rankings over the first three quarters of 2008.
Each of three Canadian banks moved up more than a dozen places since the end of 2007. Two US banks, JPMorgan Chase and Wells Fargo, had the biggest gains among the 10 largest banks, moving up four and five places, respectively.