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Quarter-End Insights

Financial Services: Banks Can't Rest Easy

The macro economy remains generally benign, but banks continue to strive for increased operational and capital efficiency.

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  • We assess the global financial-services sector as fairly valued. It has recently traded at a market-cap-weighted price/fair value estimate ratio of 1.03--only a 3% premium to what our analysts believe the sector is worth.
  • Several key themes for U.S. banks include repricing of deposits, efforts to improve operating efficiency, increasing capital returns to shareholders, and marginally slower loan growth.
  • Results are mixed in Asia, but generally banks with greater overseas exposure are faring better than more domestically orientated peers. Although wage growth and savings levels remain low, on balance, we believe the current macroeconomic backdrop remains favorable for the Australian major banks as well as the broader financial sector.
  • European fintech investing is heating up, and European insurers are taking strategic actions in the asset management space.

The global financial services sector appears to be fairly valued. The overall sector trades at a price/fair value ratio of 1.03, which suggests bargains are limited. The cheapest subsectors are Global Banks, Regional European Banks, and Diversified Insurance firms with an equal-weighted by company average, price/fair value ratio of approximately 0.97.

Michael Wong does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.