The Faro office constructing on the headquarters of Banco Santander SA on Thursday, February 2, 2023.
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European banks look stronger and more attractive than their US counterparts in lots of respects, in accordance with officials and analysts speaking on the Institute of International Finance conference in Brussels this week, who add that regulation and cooperation are still needed to spur growth within the region.
The most important U.S. bank is price as much as nine or ten of the most important European banks because of weaker growth and lower profitability because the 2008 financial crisis, Ana Botín, president of Spain’s Santander Group, told CNBC during a Tuesday event.
Nevertheless, top European banks have higher levels of credit default swaps, a type of insurance for the corporate’s bondholders against insolvency, “meaning fixed income investors consider our debt risk is lower than that of top US banks,” Botín added.
Recent volatility which has led to a sale Credit Suisse she said UBS is not evidence of a systemic banking crisis, but moderately of mismanagement and liquidity problems at individual banks.
“We’ve got a really strong position by way of capital, liquidity supervision, protection of our clients’ data. But we also need a bit more capability to support growth in order that we could be more profitable,” she said.
“We’d like a serious rethink of what we wish banks to be in a latest economy in a world that needs growth. And by saying that the balance is really necessary between being careful, we’re not saying we must always return to that. but in addition the potential of financing growth,” continued Botín, adding that this might be a key topic of the IIF conference.
European banks are “safer, stronger, cheaper” than US banks, said Davide Serra, CEO of Algebris Investments, who highlighted the upper liquidity ratio of European banks – around 160% – in comparison with 120% within the US
“In a way, US banks are optimizing their deposit base more. And now with the Fed [Federal Reserve] by keeping rates of interest higher, people just need to generate income on their deposits. In order that they have options with money markets or money moving,” he said.
“At the identical time, people within the US are being reminded that not all banks are created equal. And simply because you may have an indication called a bank, you are not as protected as you already know, JPMorgan or Morgan Stanley.
He said it will result in further consolidation within the US after a string of regional bank failures this yr, with banks deemed protected.
“Overall, I feel the chance is clear. With strong banks in Europe and the US, with a way more attractive Europe, there was zero outflow of deposits, zero issuance… And so, to be honest, after 10 years of restructuring, I feel Europe is a spot to be.’
The delay of the banking union
José Manuel Campa, president of the European Banking Authority, noted the low valuations of European banks, but said they were improving amid turbulence in the broader sector, with higher rates of interest boosting their profits.
“I feel with rates of interest rising, if [European banks] proceed to point out that their business model is sustainable, we must always also see an improvement in these valuations within the medium term,” he said.
In response to Campy, any further consolidation in European banking should be about creating higher banks and “moving towards supporting a more integrated single market within the European Union in order that we will have cross-border banking and more efficient services for European customers.”
EU has long delayed plan to further develop the banking union, a algorithm introduced in 2014 to strengthen banks, create the so-called common system in deposit insurance and other areas. Talks are also underway on Capital Markets Union.
Each Botín and Campa said speeding up these difficult negotiations was necessary for the long run of the sector, and Botín said they may help boost European growth.
“There is one thing we will do in Europe to realize higher growth and that is securitization,” she said.
The creation of recent securitization rules, the creation of tradable securities from a pool of assets – which stays a contentious issue after the subprime mortgage crisis – is central to the EU’s proposed Capital Markets Union.
“The securitization market in Europe is 6% larger than the US market. Banks are now not the perfect credit holders,” said Botín.
“In lots of cases we will are available, we may also help our clients raise that capital after which put it into other funds and other entities that are higher holders. So there are many things in regards to the Capital Markets Union, for instance, that may work faster and provide help to grow faster,” said Botín.