How Healthy are the Banks?
Time to Focus on Value

March '10

The recent 2009 results season delivered some long-awaited good news. Earnings are up at major banks and share prices are also on the way to recovery. So, is the worst over? And, more importantly, how healthy are the banks today?

Our research indicates that the industry is not ‘out of the woods’ yet… not by a long shot. Major banks are not forecasted to earn their cost of equity capital in 2010–11. This is neither ‘healthy’ nor sustainable.

Banks cannot build a healthy banking system alone, but there is no shortage of things that good management could do and needs to do. Improving returns relative to risk should become the key strategic priority for management in the near-term. Most banks will also need to change in fundamental ways to sustain value growth over time.