International banks and financial institutions have recorded a dramatic decline of as much as 92.5 per cent in their market capitalisation value due to the current financial crisis.
Leading the financial plunge is RBS (Royal Bank of Scotland), which is left with a market cap value of $4.6 billion recorded in the month of January 2009.
This is in contrast to its market cap value of $120bn recorded in the second quarter of 2007. The total decline is more than 96 per cent, according to a special report prepared by JP Morgan.
Trailing closely behind is Citigroup, which has also seen a sharp decline of more than 94 per cent in the past two years.
Today its market cap value is estimated at $19bn compared to $255bn in the second quarter of 2007.
JP Morgan, a US-based financial institute has compiled this special Market Cap report of major international banks and financial institutions and is an insight into the current status of the market.
Industry experts believe it will be very useful in evaluating "investment worth and factual value of the institutions".
"Investors will diversify in their investment," said one banker who heads the private banking division of a European bank based at the DIFC.
"In times of healthy fiscal reality, investors would ideally invest in the goodwill of the institution, but in the current circumstance under the revised market cap values investors will obviously seek a bouquet of investment opportunities," he added.
"You do not only limit your risk, but also get more out of your investment when you spread it horizontally," he said.
Government involvement in the form of bail-out plans will also be the deciding factor for new investors.
"As market seems to be tumbling uncontrollably, it's the external forces, including the government bail-out plans, that will boost the required confidence of investors," said Naresh Bhambhaney, another Dubai-based private investor.
Among the international banks listed on this JP Morgan report, Spanish bank Santander has shown the least drop in the past two years. It was listed with a market cap value of $116bn in the second quarter of 2007 and after a drop of 45 per cent is at a market cap value of $64bn last month.
JP Morgan itself is maintaining a relatively healthy record with a drop of little more than 48 per cent over the last two years.
Today, JP Morgan has a market cap value of $85bn, a drop from $165bn in the second quarter of 2007.
Barclays has also recorded a loss of more than 91 per cent in market cap value. It has dropped from $91bn in the second quarter of 2007 to $7.4bn in January of this year.
Other financial institutions, including Deutsche Bank (minus 86 per cent), Credit Agricole (minus 74 per cent), Unicredit (minus 72 per cent), UBS (minus 71 per cent), Credit Suisse (minus 64 per cent) and Goldman Sachs (minus 65 per cent) have all been listed with dramatic drop in their market cap values over the past two years.
HSBC, in comparison, has had a controlled damage with a drop of 54 per cent from $215bn to $97bn.
Commenting on the true value of the market cap, Bhambahney said: "These evaluations are on the shares in the market, however, there are those institutions that retain a fixed value of their shares within that helps in padding the impact of financial jolts – like the kind we are experiencing nowadays." UAE-based banks have that benefit as is evident from the market cap value of some of the local banks. While most local banks have also shown big decline in their market cap values, Mashreq, on the other hand, shows a positive growth of 14 per cent over the past one year.
Explaining the cryptic trend, a financial analyst at the DIFC said: "Barely two per cent of the shares of Mashreq are floated in the bank, while the remaining are held by the institution or an individual. This restricts large trading activity, eventually guarding the bank from external forces of the market."
In comparison, other local banks have also suffered from the current fiscal reality and has shown as much as 70 per cent drop in their market cap values.
In the last documented figures by BHF Bank, EmiratesNBD had taken the biggest plunge with a drop of 70.7 per cent in the past one year as it stands today at Dh18.7bn worth of market cap value.
First Gulf Bank's market cap value is at Dh12.1bn, showing a drop of 56.5 per cent and following it closely is Abu Dhabi Commercial Bank, which has witnessed a drop of more than 54 per cent in the past one year.
Its market cap value is estimated at Dh11.8bn as last reported in the daily table presented in the marketing section of the Emirates Business.
However, National Bank of Abu Dhabi maintained a relatively healthy market cap value of Dh20.8bn; showing a drop of 44.5 per cent over the past one year.
Overall, banks that have survived the test of times are not exactly out of the worst, warn industry experts. "Whether its good to be wound up or to survive with deep wounds is a contrasting perspective of the fiscal world," said a financial analyst, operating at the DIFC.
However, is the market cap value an indication of the reality or just an indication of the times to come, is anyone's guess and no-one is willing to put their name to it.
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