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European Banks Struggle With Low Interest Rates and Strict Regulations

Banks in Europe have been in a difficult spot lately. A new report reveals that financial institutions across the region faced serious difficulties in the 2018 financial year, and despite all the cost cutting that followed, haven’t managed to compensate the revenue decline in 2019. Historically low interest rates, new regulatory hurdles and competition from U.S. banks have all added to the hardship.

Also read: Another Bank Run Highlights China’s Brewing Financial Crisis

Corporate and Investment Banks See Declining Revenues

The financial industry in Europe is facing some fundamental constraints such as cost inelasticity, revenue decline and talent evasion. The European CIB Outlook 2019, a study published recently by the consulting firm Eurogroup Consulting, is centered on how the continent’s corporate and investment banks (CIS) can address these challenges.

European Banks Struggle With Low Interest Rates and Strict Regulations

Other threats they have to deal with stem from the economic and regulatory environment, which has been deteriorating. These include interest rates that have reached historic lows, new stringent regulations requiring compliance and increased market volatility. European banks had to make infrastructure investments while being forced to significantly reduce spending at the same time.

According to the researchers, “In FY 2018, a large majority of European CIBs experienced negative Jaws.” In finance, the ‘jaws ratio’ is an indicator measuring the difference between income growth rate and expenses growth rate.

During the 2018 financial year, overall CIB revenues grew by 3.5%. The upward movement was catalyzed mainly by equity and prime services as well as a favorable exchange rate, the authors of the study note. By the first quarter of 2019, however, equities and prime businesses had fallen by 21.6%. That caused a 10% year-over-year drop in operating revenues. The report concludes:

Cost reduction programmes have struggled to keep pace with top line decline, combined with increased volatility in the market and unprecedently low interest rates.

Digitalization Offers a Way Out

Eurogroup Consulting points out that the study has assessed how European CIBs can bridge the performance gap with U.S. banks, which have been able to strengthen their position abroad thanks to two main factors – a stronger domestic market and more favorable regulatory landscape. Corporate and investment banks on the Old Continent should consider structural changes, the consulting firm says, in order to address the fundamental constraints they are facing.

European banks must focus on asset industrialization, for instance, aiming to achieve a return on equity (RoE) increase of between 2 and 4%. They can also gain from structured finance opportunities with revenue growth leading to RoE improvement of around 2 to 3%. Last but not least, talent empowerment can get them a RoE expansion of up to 2%.

European Banks Struggle With Low Interest Rates and Strict Regulations

One the main goals of the report is to seek ways for European CIBs to optimize their costs and re-energize their talent, as the authors put it. Quite naturally, in a time of rapid digital transformation one of the paths to achieving that is through “digitalization, whereby digital initiatives will only be successful by aligning their strategy to the scale of disruption and maturity.”

Disruption and maturity is actually what some European countries and their banks have been demonstrating. In Switzerland, whose crypto valley has become home to over 700 companies, traditional banks have started to team up with fintechs to offer cutting edge digital services. And the Swiss government recently presented a set of wide-ranging proposals to update its banking, corporate and financial infrastructure laws to accommodate the digital asset industry.

Or take Germany as another example, where new legislation is going to allow banks to receive, store, and sell cryptocurrencies starting from next year. A partnership between a crypto platform and a local bank there already offers clients the chance to buy and sell cryptocurrency directly from their bank account, which comes with an integrated bitcoin wallet. Besides, a growing number of companies, such as Cred for instance, provide global banking services tailored to the specific needs of crypto users.

Do you think integrating cryptocurrencies will help European banks to improve their financial results and gain an edge in competition with their U.S. peers? Share your thoughts on the subject in the comments section below.

Images courtesy of Shutterstock, Eurogroup Consulting.

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banks, Bitcoin, corporate banking, cost cutting, costs, Cryptocurrencies, digitalization, digitization, Europe, european, european banks, interest rates, investment banking, Investments, Regulations, revenues
Lubomir Tassev

Lubomir Tassev is a journalist from tech-savvy Bulgaria, which sometimes finds itself at the forefront of advances it cannot easily afford. Quoting Hitchens, he says: ”Being a writer is what I am, rather than what I do.“ International politics and economics are two other sources of inspiration.

Lubomir Tassev , 2019-12-04 10:45:04 ,

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NewsBlock © 2019 - 2020 All rights reserved.

NewsBlock © 2019 - 2020. All rights reserved.

While Bitcoin’s price seemingly moves without rhyme or reason — collapsing by dozens of percent and embarking on face-melting rallies on a whim — the cryptocurrency market is filled to the brim with fractals.

Related Reading: Analyst: Bitcoin Price Likely to Fall to Low-$8,000s as Chart Remains Weak

A brief aside: A fractal, in the context of technical analysis and financial markets anyway, is when an asset’s price action is seen during a different time. This form of analysis isn’t that popular, but it has proven to be somewhat valuable in analyzing Bitcoin.

One recent fractal popularized by a well-known cryptocurrency trader is implying that BTC is going to return to the low-$7,000s in the coming days.

Bitcoin Fractal Implies Retracement to Low-$7,000s

A well-known crypto trader going by “Tyler Durden” on Twitter recently posted the chart below, which shows that a Bitcoin price fractal may be playing out. The fractal has four phases: horizontal consolidation marked by one fakeout, a surge above the consolidation phase, a distribution, then a strong drop to fresh lows.

If the fractal plays out in full, BTC could reach the low-$7,000s again, potentially as low as $7,100. This would represent a 20-odd percent collapse from the current price point of $8,800.

It isn’t only a fractal that is hinting Bitcoin has the potential to visit its lows. As we reported on Saturday, Bloomberg believes that if the GTI Vera Convergence Divergence Indicator flips red, a downtrend could push the cryptocurrency back to $7,300.

Related Reading: Stephen Colbert Pokes Fun at Bitcoin in Monologue: Mainstream Gone Wrong?

Can Bulls Step In?

But again, many believe it is irrational to have such bearish interpretations of the cryptocurrency’s chart at the moment. As reported by NewsBTC earlier, Popular crypto trader Mayne recently noted that the “people waiting for $6,000” are irrational. He quipped that Bitcoin retracing and consolidating after its fourth-biggest bull move in history ($7,300 to $10,500, a 42% gain) is perfectly par for the course, but noted that it’s totally possible we can go lower from $8,800.

The medium-term technicals support this.

Trader and CoinTelegraph contributor FilbFilb found that by the end of November or start of December, the 50-week and 100-week moving averages will see a “golden cross,” which he claims is far more significant” for the Bitcoin market that other technical crosses.

Also, a Bitcoin price model created using Facebook Prophet machine learning found that the leading cryptocurrency is likely to end the year at just over $12,000. What’s notable about this model is that it called the price drop to $8,000 months in advance, and forecasted a ~$7,500 price bottom for BTC.

To put a cherry on the cryptocurrency cake, Crypto Thies observed that when Bitcoin bottomed at $7,300, it bounced decisively off the 0.618 Fibonacci Retracement of the move from $3,000 to $14,000, which correlates with the two-week volume-weighted moving average. He added that summer 2019’s consolidation was marked by Bitcoin flipping major resistances into support levels, implying that a bullish reversal and subsequent continuation is likely possible in the coming weeks.

Featured Image from Shutterstock

Nick Chong , 2019-11-10 12:00:38

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