Europe Bank Chiefs Step Up Integration Calls as U.S. Gap Widens
(Bloomberg) -- Top European bank executives urged lawmakers to move past deadlocks that have held up the bloc’s project for a unified banking and capital market and hampered their ability to compete with Wall Street peers.
Deutsche Bank AG Chief Executive Officer Christian Sewing said Europe has made large banks safer after the financial crisis, but failed to create conditions for them to consolidate and grow. His comments were echoed by Banco Santander SA’s Chairman Ana Botin and other executives who called for an urgent completion of Europe’s banking union, as well as a single capital market.
“It was right and remains right to regulate large banks particularly carefully,” Sewing said at the Handelsblatt banking summit on Wednesday. “But we have done much in Europe to keep banks from getting big. That’s a questionable course.”
Banks across Europe have fallen far behind their U.S. peers as the region struggled to agree on quick and effective measures to promote the banking system in the wake of the financial crisis. While the bloc unified bank oversight and agreed on ways to jointly handle failed lenders, it’s been unable to create a common deposit insurance system that would make cross-border mergers easier, or even a single capital market to encourage more private investment.
The market valuation of Europe’s largest banks including Deutsche Bank is a fraction of their U.S. peers, and the German lender’s stock price in particular has suffered, trading some 88% below its peak just before the financial crisis. At the same time, banks such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. have hit record highs.
“What are we supposed to do in view of those valuation gaps?” Sewing asked in his speech at the Handelsblatt banking summit. “We need to strengthen Europe’s internal market as quickly as possible, especially for services. That includes a banking and capital markets union.”
Botin, speaking at the same conference, said it’s “very important to have further European integration and hopefully the capital markets union is something we can work on faster.” Commerzbank AG CEO Manfred Knof called on Germany’s next government to “take steps to strengthen the European capital market.”
The lack of a single capital market in the region has long held back retail investing and left companies reliant on bank lending. The banking union was conceived in the throes of the region’s sovereign debt crisis to break the “doom loop” between national governments and lenders, but without a common deposit insurance it remains unfinished.
The German lenders in particular have struggled in this environment. Deutsche Bank has exited equities trading and is cutting thousands of jobs to restore profitability. Commerzbank, which was forced to swallow big losses on Greek sovereign bonds in the country’s 2012 debt restructuring, is also cutting thousands of jobs.
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