The global professional services firm Alvarez & Marsal (A&M) has presented the A&M35 Global Banking Pulse report. The report provides a comparative analysis of the performance of the 35 leading banks in North America and Europe, aiming to identify trends and insights shaping the future of the banking sector.
The report highlights that North American banks are outperforming their European counterparts in revenue generation, with net interest margins (NIM) of 1.8% compared to 1.2% for European banks. Additionally, net fee income is 60 basis points higher in North America. As a result, North American banks generate 50% more banking service revenue than their European counterparts.
The report reveals that North American banks significantly outperform European banks in revenue and business productivity, while European banks lead in cost-efficiency relative to income due to greater cost-cutting efforts following the credit crisis. On average, European banks have an efficiency ratio of 55%, better than the 62% of U.S. banks.
“Overall profitability is similar, with North American banks generating an average ROE of 11.9% compared to 11.3% for European banks. However, the valuation gap remains wide: North American banks trade at 1.4 times their book value, while European banks trade at 0.9 times. This difference is due to greater investor confidence in the sustainability of North American banks’ revenues, in contrast to the regulatory and economic challenges faced by European banks,” the report highlights.
The report also notes that European banks maintain stronger capital positions, with an average CET1 ratio of 14.5% compared to 13% in North America, reflecting stricter regulatory requirements and lower dividend distribution capacity among European banks. MREL levels for North American banks, at 30%, are 6% lower than their European counterparts.
The findings highlight fundamental differences in the structure and priorities of banks on both sides of the Atlantic. One such difference is the regulatory environment: North American banks operate under lighter capital models, offering more flexibility to generate returns, while European banks face stricter capital requirements and higher regulatory costs.
Another difference is market structure: higher credit and fee margins in North America contribute to greater revenues, while European banks struggle with compressed margins due to lower interest rates and less pricing power on fees.
The final difference the report emphasizes is efficiency initiatives: European banks have made significant progress in operational optimization, leveraging digital transformation to address inherited inefficiencies and reduce staff.
In light of these findings, Fernando de la Mora, Co-Head of A&M Financial Services Industry, remarked, “North American banks account for 64% of total market capitalization, while European banks represent only 36%, according to our report. This significant disparity in valuation is explained by structural differences in market power, scale, and regulatory frameworks. We anticipate an increase in merger and acquisition activity among large European banks as they seek to achieve greater scale.”
