Euro area LCBGs’ earnings and solvency developments Turning next to the euro area financial institutions, large and complex banking groups (LCBGs) remained under intense financial stress in the last quarter of 2008. Profits and (the weighted average) return on equity (ROE) declined sharply, as shown in the left panel of Chart 10.
This performance reflects partly further write-downs on structured product portfolios and increasingly the deterioration in the macroeconomic environment, which resulted in an increase in loan losses and a decline in non-interest revenue. In the first quarter of 2009, euro area banks’ ROE improved somewhat, albeit at a very low level, thanks to a more favourable trading environment and better non-interest revenues.