Diagnosing What Ails Europe’s Biggest Banks

European banks are having a hard time making money. The 12 largest lenders earned 18¢ on average for every $100 in assets last year, while their six biggest U.S. rivals made 92¢. Three European giants—Credit Suisse, Deutsche Bank, and Royal Bank of Scotland—each racked up billions of dollars in losses in 2015. RBS has lost money every year since the 2008 crisis.

The predicament has put the markets on edge. European bank stocks are down an average of 18 percent this year as of March 1, compared with a loss of 7.4 percent for the Stoxx Europe 600 index. More disconcerting is the jump in the cost of financial contracts that protect bondholders if a bank defaults. Insurance on the senior bonds of Deutsche Bank, for example, has more than doubled in price this year.