The Faro office building at the headquarters of Banco Santander SA on Thursday February 2, 2023.
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European banks appear stronger and more attractive than their US counterparts on many metrics, according to officials and analysts speaking at the Institute of International Finance conference in Brussels this week, who add that regulation and collaboration are still needed to drive growth in the region.
The largest bank in the United States is worth what the top nine or ten European banks are worth due to weaker growth and less profitability since the 2008 financial crisis, Ana Botín, executive chairwoman of Spain’s Santander Group, told CNBC at the event on Tuesday.
However, major European banks have better levels of credit default swaps, a form of insurance for a company’s bondholders against default, “meaning that bond investors believe the risk of our debt is lower than that of the best banks in the United States”, Botín added.
The recent volatility that led to the sale of Swiss credit at UBS was not evidence of a systemic banking crisis, she said, but rather of mismanagement and liquidity issues at specific banks.
“We are in a very strong position in terms of capital, liquidity supervision, protection of our customers’ data. But we also need a little more capacity to support growth in order to be more profitable”, she said.
“What we need is a fundamental overhaul of what we want banks to be in the new economy in a world that needs growth. And finding that balance is really important between being careful, we don’t let’s not say we should go back on that, but also be able to finance growth,” Botín continued, adding that this would be a key theme of the IIR conference.
European banks are “safer, stronger, cheaper” than US banks, said Davide Serra, managing director of Algebris Investments, who pointed to the higher liquidity ratio of European banks – around 160% – compared to 120 % in the USA.
“In a way, the banks in the United States have further optimized their deposit base. And now, with the Fed [Federal Reserve] maintain higher interest rates, people just want to be paid on their deposits. So they have options with money markets or with money transfers,” he said.
“At the same time in the United States, people are reminded that, you know, not all banks are created equal. And just because you have a sign called a bank, you’re not as safe, as you know, JPMorgan or Morgan Stanley.”
This will lead to more consolidation in the United States, he said, after the series of regional bank meltdowns this year, from which banks considered safe will benefit.
“Overall, I think the opportunity is clear. For strong banks in Europe and the US, with a much, much more attractive Europe, there has been no deposit outflow, no issuance… And so, to be honest, after 10 years of restructuring, I think Europe is the place to be.”
José Manuel Campa, chairman of the European Banking Authority, noted the low valuations of European banks, but said they had improved amid broader sector turmoil and higher interest rates are boosting their yields.
“I think as interest rates go up, if [European banks] continue to show that their business model is sustainable, we should also see medium-term improvements on these valuations,” he said.
For Campa, any further consolidation of the European banking sector must aim to create better banks and “help to promote a more integrated single market in the European Union so that we can have cross-border banking services and more efficient services for European customers”.
The EU has a long delayed plans to further develop its banking union, a set of laws introduced in 2014 to strengthen banks, create a common system in deposit insurance and other areas. Talks are also underway on a Capital Markets Union.
Both Botín and Campa said advancing these delicate negotiations was important for the future of the sector, with Botín saying they could help boost European growth.
“One thing we could do in Europe to have higher growth is securitization,” she said.
Creating new rules on securitisation, the creation of marketable securities from a pool of assets – which remains a contested topic after the subprime mortgage crisis – is key to the EU’s Capital Markets Union proposal. EU.
“The securitization market in Europe is 6% the size of the US market. Banks are no longer the best credit holders,” Botín said.
“In many cases we can create, we can help our clients raise that capital and then place it with other funds and other parties that are better holders. So there are a number of things around of the Capital Markets Union, for example, which could move faster and contribute to higher growth,” said Botín.