Weak Bank Earnings Here To Stay

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Provisions for European bank loans to oil and gas companies are likely to climb -- my Gadfly colleague Lionel Laurent notes that HSBC took a $400 million hit on those loans this week -- further crimping profit. And there seems to be no end to the fines being paid for rigging markets, with settlements for faking prices for gold, silver, platinum, palladium and derivative-market benchmarks still looming...

The fundamental concerns are about the returns of these institutions. Many of these institutions have not developed the business models that are consistent with a low growth, low interest rate environment, and consistent with making returns that shareholders expect under the new regulatory construct...

There's a strong argument to be made that the post-crisis backlash against banks and bankers is having the unintended consequence of making the finance industry less fit for purpose, not more. A falling tide lowers all boats, and banks that are seeing their market capitalization trashed are less likely to fuel the economic rebound central bankers are hoping for. Until the pendulum swings away from its current trajectory toward tighter regulation and stricter capital standards, European bank investors should resign themselves to disappointing profits -- and stop being surprised that the world of finance is struggling with its new normal.