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IMF Identifies Nine Big Banks Likely to Struggle With Profitability

It is unusual for a body like the IMF to identify banks by name. The report named nine financial institutions in all, Besides Citigroup, Deutsche and Barclays, it also named Société Générale , SCGLY 0.13% Italy’s UniCredit UNCFF -0.54% S.p.A., the U.K.’s Standard Chartered STAN -0.30% PLC and Japan’s Sumitomo Mitsui Financial Group , Mizuho Financial Group and Mitsubishi UFJ Financial Group as likely to deliver subpar profits.

“Institutions that are not profitable might not be able to generate enough capital in the future should adverse shocks hit,” Tobias Adrian, director of the IMF’s monetary and capital markets department, told reporters. “It might become a financial stability risk not to be profitable.”

The IMF said the consensus among private-sector bank-industry analysts was for a return on equity of less than 8% for each of those nine banks in 2019. In previous research, the IMF has said that banks’ cost of equity—that is the return stock investors expect on their holdings—is at least 8%. Banks need to earn above this threshold to remain consistently profitable and otherwise may face difficulty building capital for a rainy day, the IMF said.