Conference Presentation, Interview
Takeaways from the 24th European Financials Conference
- Major European banks, insurance firms, diversified financials, and real estate companies were expected to feature executive management, with investment propositions heavily dependent on policymaker decisions regarding the economic path.
- The conference assessed the current period as a very harsh and sharp economic contraction, with a consensus that near-term pain will continue, though this crisis is expected to be worse historically than in 2008, 2009, or 2012.
- Policymakers are expected to present a more optimistic outlook for 2021 and 2022, while investors' recovery expectations for those years are expected to remain significantly below those projections.
- The sector discussion was expected to coalesce around three overriding themes, with credit quality and solvency dominating, while liquidity positions are anticipated to be strong and boosted by policy support.
- There is no clear answer regarding the magnitude or duration of elevated credit losses, which are expected to depend on the length of lockdowns and the probability of a second public health wave.
- A significant portion of time was expected to focus on banks' capacity to underwrite recovery and remunerate shareholders, with doubts existing about sufficient capital to fund the recovery phase.
- If banks lack sufficient capital to underwrite recovery, capital is expected to need to come from the market, which may only commit if offered a reward in the form of dividends.
- While static solvency components were expected to provide reassurance regarding reasonable capital positions, the outcome of Brexit remains an unknown potential shock to the financial system.
- There is expected to be no information edge in predicting credit quality outcomes, despite constructive communication from bank management intended to highlight capital stability.
- The severity of the current crisis is reinforced by the extent of the policy response, which implies a level of concern that would not have arisen without an extreme risk of a prolonged downturn.