Quality Growth Boutique

Quality Growth Banks: Why We Find the U.S. a Better Hunting Ground Than Europe


In this Viewpoints paper, Igor Krutov, Director of Research, explains why most European banks suffer from structurally poor profitability. Even “average” U.S. regional banks are earning ROTEs (returns on tangible equity) in the mid-teens, something most European banks can only dream of.

Some argue that when interest rates (eventually) go up in Europe, banks there will enjoy a net-interest-margin expansion that will close most of the ROTE gap with their U.S. peers. We disagree. We believe the underlying cause of poor profitability is fierce competition, not low rates. We expect that in overbanked markets, the initial improvement in net interest margins from higher rates will be ultimately passed on to the banks’ customers.

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