As the coronavirus pandemic sweeps the world, the global economy is struggling. Around the world, companies face some of the same concerns individuals face. Namely, do they have enough money to survive?

Even banking and commerce are affected. As other companies turn to them for help, the European Investment Banking industry feels the effects of the pandemic. Are the banks strong enough to endure another financial crisis?

Despite the difficult situation, there may be some reasons to be hopeful. Would you mind reading for an analysis of European investment banking and its current status?

What Is an Investment Bank?

An investment bank helps other organizations (companies or governments) raise capital. They take a role similar to an underwriter and ensure the stocks or bonds are priced appropriately. They may also help their clients with mergers and acquisitions.

Many European companies use bank loans for 60% of their credit. The rest of their financing comes through selling bonds or shares in their company. In contrast, most American companies use bank loans for less than 30% of their credit.

Effects of the Pandemic on European Investment Banking

The coronavirus pandemic has had a severe effect everywhere in the financial world. This is particularly true of European investment banking. Due to the pandemic, the European economy is expected to drop over 10% in the first half of 2020. Even the best investment banks are vulnerable to bad loans, deteriorating assets, and lower share prices.

Many European banks are still feeling residual effects from the 2008 financial crisis. With bad debts from real estate and government holdings, it took them over seven years to recover from that crisis. Now they’re starting to feel the hit as this situation progresses.

Banks with big industry clients – aviation, oil, automobile manufacturing – struggle. As these industries draw down on credit lines to compensate for lost sales, even the top investment banks find their reserves disappearing.

Cautious Optimism Investing in European Banks

Despite all this, there is reason to be hopeful. Europe reacted quickly to counteract the potential economic damage from the shutdowns and quarantines.

The European Central Bank reacted quickly by pouring cash into its financial system. The ECB also provides centralized oversight of lenders. This has diminished the arguing and political jockeying between national banks.

For instance, the European Investment Bank Group finds itself in a stronger position than during the previous crisis. Since 2008, many banks built up their capital reserves and relied less on borrowed monies. So, at the moment, many are staying afloat.

Looking Ahead

Despite low-profit margins and residual effects from previous financial crises, European investment banking has mitigated the current pandemic’s effects. Of course, the longer this pandemic lasts, the more risk they face. But at the moment, they are holding their own.

Check out other articles on our blog for more financial and banking insight.