European banks updates
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The writer is European head of banks research at Morgan Stanley
The events of 2020 were a litmus test for Europe’s investment banks after a decade of regulatory reform and business model restructuring.
Central bank support was crucial in maintaining functioning markets at the start of the pandemic and government intervention helped prop up the economy. However, the banks showed a greater resilience than in crises past.
A key factor in this is how the sector has shifted its business models away from what is known in the industry as risk warehousing (keeping assets, and thus risk, on the balance sheet). The banks have moved towards less capital-intensive activity, earning fees from the transactions of clients and managing risk for them.
Balance sheets have been shrunk as banks increased the speed at which they move…