Hiring a New Bank CEO Rarely Improves the Share Price

(Bloomberg) -- If history is any guide, shareholders in Europe's beleaguered banks shouldn't place their hopes for revival in new chief executive officers.

Lenders in the post-financial crisis era have underperformed rivals in the years following the hiring of a new CEO, according to Berenberg analyst Andrew Lowe.

“Underlying economics remain the key driver of success,” Lowe wrote. “We conclude that turning around an underperforming bank is tough and that it generally pays to back proven winners.”

With management turnover already at historic levels among the continent's lenders, the research may dampen investors' hopes that such moves will result in better performance.

Turnover was last this high in 2015, when a flurry of management changes pushed through costly overhauls across the continent. European bank stocks have lost more than half their value since then.

Now the sector is gearing up for more changes.

Firms including Credit Suisse Group AG, HSBC Holdings Plc and ABN Amro NV have all replaced their chiefs in the past year. Ralph Hamers is set to become CEO of Zurich-based UBS Group AG next month. Natixis SA ousted Francois Riahi in August and replaced him with Nicolas Manias.

More may be coming. Standard Chartered Plc has informally approached executives to gauge their interest in replacing boss Bill Winters, Bloomberg reported earlier this year. A search is under way at SocGen for a successor to Frederic Oudea, the longest-serving European bank CEO.

Luring a new CEO seemed a smart move before the financial crisis. During that era, Lowe wrote, European banks outperformed their rivals by more than 12% in the two years following a new hire.

The crash ushered in a wave of new regulations and probes, however. This upended many European banks' business models and left them saddled with piles of bad loans, costly derivatives and soaring compliance costs. Lenders that hired a new CEO from 2014 onwards underperformed their rivals by 0.4% in the two years that followed, according to Lowe.

©2020 Bloomberg L.P.