Capital markets union urgently needed: top bankers are campaigning for mergers

Capital markets union urgently needed
Top bankers advocate mergers

In an international comparison, the German banks are ahead of the competition. To keep up with US banks, top bankers are beating the drum for larger European banks. But the hurdles for cross-border mergers are high and fintechs sense their opportunity.

According to top European bankers, there is no getting around large bank mergers across national borders. Only in this way do the financial institutions see themselves in a position to keep up with the ever-growing US banks. At an industry event, the heads of Deutsche Bank, Santander and ING made ardent pleadings for a stronger Europe and larger European banks. But it will not work without the backing of regulators and politicians, stressed Deutsche Börse boss Theodor Weimer.

The European Central Bank (ECB) sees scope for consolidation in the industry – also in their own countries. “We must finally use the economies of scale Europe,” said Deutsche Bank boss Christian Sewing at the event of the “Handelsblatt”.

It could not be in the interests of the local banks for all global institutions to have their headquarters outside Europe. “The importance of size in the financial world is growing exponentially.” Only large banks could raise the necessary investments to transform it into a more sustainable and digital economy. A common capital markets union is therefore urgently needed.

There must also be political will

Their slow implementation is a major stumbling block for European banks, said Ana Botin, head of the board of directors of the major Spanish bank Santander. Without this standardization of the banking and capital market there will be no mergers and the stock market values ​​of the institutes will continue to fall behind those of the US financial institutions. “Having a real unified financial market in Europe is of key importance.” Ten years ago, Santander had about as high a market value as the US bank JP Morgan. The Americans now have a market capitalization of $ 475 billion – around seven times as high as Santander and 18 times as high as that of Germany’s largest financial institution.

At the turn of the millennium, the 25 largest European banks had a stock market value similar to that of the 25 largest US companies – at the moment, JP Morgan and Bank of America alone are worth as much as the 18 largest European banks combined, Sewing calculated. “Internationally, we ran away from the big banks because they have less regulation,” explained stock exchange chief Weimer. The institutes in Europe would have to grow faster again. “If we don’t get out of the vicious circle, the danger is that at the end of the day we will lose our banks.”

Either more foreign banks got on board or fintechs grabbed market share. In order to make cross-border mergers possible, in addition to a banking and capital market union, the backing of the supervisory authorities and politics is necessary, said Weimer, who sits on the supervisory board of Deutsche Bank and is traded as a possible successor to supervisory board chairman Paul Achleitner. The regulator must recognize that mergers across national borders are not without risks. There must also be political will.

Sewing wants to sweep in front of his own door first

From the point of view of ECB banking supervisor Kerstin Jochnick, not only cross-border mergers should be considered in the euro zone. “I think there is also scope for consolidation within each individual country in the euro area,” she said at the industry meeting. “So it’s not just a consolidation across borders that we’d like to see.” To a certain extent there are simply too many banks in Europe.

The ECB has been suggesting for some time that mergers could be a factor in increasing pressured earnings and reducing costs. Before Sewing leads his house into a major merger, he first wants to sweep his own door further. “We don’t scratch our hooves, we don’t look around either,” he said. “We are preparing to go into a merger on an equal footing.”

The best preparation is to get fit yourself. With the restructuring that began around two years ago, Deutsche Bank is on the right track. “We’re getting fitter and fitter from quarter to quarter.” Deutsche Bank had accumulated billions in losses for years until Sewing initiated a radical restructuring in the summer of 2019. He shut down entire departments and shed risky parts of investment banking, and 18,000 jobs were lost worldwide. The renovation should take until the end of 2022.