The Banking Industry Lost Nearly One-Third of Its Market Value Over the First Three Quarters of 2008, Says The Boston Consulting Group

Market Wire, October, 2008

Following a steady run of strong growth, the global banking industry has experienced a massive loss in market value, according to The Boston Consulting Group (BCG).

"The market capitalization of the global banking industry fell from $8.3 trillion at the end of 2007 to $5.7 trillion at the end of the third quarter of 2008," said Lars-Uwe Luther, a BCG partner and coauthor of BCG's annual report on value creation in banking. "The crisis has wiped out nearly three years of growth in market capitalization. The banking industry's market value is now close to where it was at the end of 2004.

"The decline started in 2007. In the second half of that year, as the crisis began to intensify, banks lost $269 billion in market value. In total, banks have lost nearly $3 trillion in market value since mid-2007."

The decline in market value corresponds with a sharp fall in stock market performance. Over the first three quarters of 2008, the industry's total shareholder return (TSR) plunged by 34 percentage points, to -32.5 percent. It was nearly 60 percentage points below the precrisis average for 2006.

A Global Crisis

"The crisis, which began with a downturn in the U.S. housing market, has reverberated in markets around the world," Luther said. "In nine of the ten most developed markets, banks had double-digit negative TSRs over the first three quarters of 2008. Germany had the lowest banking TSR, at -45.1 percent, while Canada had the strongest, at -6.6 percent."

Even banks in developing markets, which had been relatively insulated from the turmoil in 2007, have seen dramatic falls in TSR. In the so-called BRIC countries -- Brazil, Russia, India, and China -- banks' TSR fell from an average of 50.0 percent in 2007 to -40.8 percent over the first three quarters of 2008.

"The crisis has also moved well beyond the banking sector," Luther said. In all industries -- not just banking -- TSR has fallen precipitously. The average TSR for all industries fell more than 42 percentage points -- from 15.2 percent at the end of 2007 to -27.1 percent at the end of the third quarter.

A New Hierarchy

The crisis has continued to shake up the hierarchy of the world's largest banks, measured by market value. Among the 30 largest banks, there have been several double-digit changes in rankings over the first three quarters of 2008.

Each of three Canadian banks moved up more than a dozen places since the end of 2007. Two U.S. banks -- JPMorgan Chase and Wells Fargo -- had the biggest gains among the ten largest banks, moving up four and five places, respectively.

About This Update

BCG is releasing data that update its annual report on value creation in banking. This year's report, "Managing Shareholder Value in Turbulent Times," was released in March. The report covered the performance of the global banking industry for the whole of 2007.

To arrange an interview with one of the authors, please contact Eric Gregoire at 1 617 850 3783 or gregoire.eric@bcg.com .

About The Boston Consulting Group

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offices in 38 countries. For more information, please visit www.bcg.com .