Hints and tips:
...This is much higher than the single-digit bank ROEs of recent years. Sales costs are low because the loans can be “cross-sold” to existing clients. Of course, share prices will fluctuate....
...Too-low ROEs However low the valuation multiples attached to the shares of the big US banks, they remain huge profit machines....
...But other big banks, particularly in the US, appeared to be “plodding along” with ROEs not much better than Deutsche or Credit Suisse, said Professor Roy Smith of New York University Stern School of Business...
...But for all the talk of returns on equity, average ROEs for Japanese companies remain below 8 per cent, compared with 16 per cent for US companies....
...Bankers admit that for the next decade the best they can aim for are RoEs in the low to mid-teens....
...Consequently we believe that now is the time for regulator to wear its ‘consumer protection’ hat and rationalise power RoEs without cutting core RoEs, which is what it did....
...Yet China’s big four – Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China and China Construction Bank – all offer ROEs of 20 per cent or more....
...“Ultimately ROEs are low because people don’t really care,” says Kathy Matsui, chief Japan strategist at Goldman Sachs....
...ROEs averaged more than 20 per cent before Lehman, which was plainly unsustainable, and then went negative....
...AIG’s return on equity, excluding one-time gains, is about 5 per cent, while some of its peers have ROES of 10 per cent, according to Bernstein Research....
...And their ROEs are something rivals can only dream of: since 2008, Australia’s big four – Commonwealth Bank, Westpac, ANZ and NAB – have averaged 14 per cent ROE, from 17 per cent in the boom....
...European bank ROEs as high as 14 per cent are possible....
...Despite the carnage of the crisis, and the lessons of excessive risk-taking it conveyed, some banks are even targeting higher RoEs than they achieved in the boom years....
...“I’m hoping that as we emerge from this crisis that investors will appreciate the trade off perhaps with somewhat lower ROEs with more sustainable, less risky long-term business plans and bank management...
...The huge losses suffered by banks during the crisis and the inevitable raft of regulations aimed at making the system safer are calling into question future ROEs....
...So, with margins and leverage declining, ROEs are unlikely to return to pre-credit crunch levels....
...What will the new ROAs and ROEs be with only 12x (or less) allowable leverage?...
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