Global largest banks lose $635bn in market cap amid pandemic, Wells Fargo, Santander biggest losers

Global largest banks lose $635bn in market cap amid pandemic, Wells Fargo, Santander biggest losers

The coronavirus pandemic has brought a lot of strain to the banking and entire financial market sector causing unprecedented loss. The full picture of the losses is well exhibited when comparing the market capitalization in the course of the pandemic.

Data presented Buy Shares indicates that 14 selected major global banks cumulatively lost $635.33 billion in market capitalization between December 2019 and August 2020. America’s Wells Fargo was the biggest loser with a percentage change in the market capitalization at -56.26% followed by Spain’s Banco Santander at -46.16%. During the period, Japan-based Mizuho Financial Group had the least change at -11.33%.

The data shows that the highlighted banks registered one of the largest slumps in market capitalization around February in the wake of the coronavirus pandemic. JP Morgan still holds a superior market capitalization at $437.2 billion in December 2019 and $305.44 billion as of August 2020.

Mitigation plans to save the banking sector

Banks went into the pandemic stronger and it might take time before they return to normal profitability. The pandemic led to a slump in various sectors of the economy and it was evident under the stock markets. The crisis generated massive instability and high volatility in global capital markets. The financial sector was among the most impacted leading to the drop in market capitalization.

The coronavirus was first reported in December 2019 but the banking and financial sector did not react immediately. At that point, there was little information on how long it might last and whether China would contain it and prevent it from spreading to other countries.

The drop in valuations for the selected banks could have been much worse if there was no intervention from central banks. The immediate measures taken by regulators to ease restrictions on liquidity and capital, banks have proved beneficial. Although the measures put in place by authorities helped banks, they still face some immediate pressures on their capital and liquidity position, as the length and severity of the outbreak remain uncertain.

At the same time, banks also requested regulators to ease capital requirements. For example, the US Securities and Exchange Commission (SEC), proactively granted relief for regulatory financial reporting to companies affected by the health crisis.

Customers began seeking financial relief, and regulators encouraged them to help them. To salvage the situation, most banks began initiating several measures like testing and implementing business contingency plans, which include alternative workplace arrangements like split work sites, working from home, and rotating shifts for all employees. Most banks turned to virtual operations in serving customers as people stayed at home to curb the spread of the virus.

Notably, the provision of technological innovation played a key role in guaranteeing the business continuity of the banks. Some firms also resorted to the activation and enhancement of robotics solutions or artificial intelligence. Notably, the shift proved costly for some institutions that were not prepared for such a crisis.

The future of banking post-coronavirus

The pandemic has also accelerated the shift towards digital banking especially with concerns over handling physical money. For example in the US, the Federal Financial Institutions Examination Council ordered banks to test their online systems’ capacity to handle an influx of digital banking customers.

After the pandemic, most banks should leverage on digital banking to keep their business afloat. Traditional banks that take lessons from digital financial institutions will find themselves more prepared to compete with challenger banks even after the coronavirus pandemic. Before the pandemic, challenger banks were already on the rise, posing a great competition for traditional banks.

Early indicators show that most banks will struggle to generate profits due to a sustained period of low-interest rates in the course of the health crisis. Despite the gloom future in regards to profitability, banks need to start plotting their post-COVID-19 future.

Banks will need to adapt to a new customer norm with new business models as well as rethink what drives brand loyalty. Restructure the addressable market to grow beyond the core. Most importantly banks will need to validate long-standing business assumptions. Long-held assumptions that have underpinned the banking business model may vary.