HomeFinanceEuropean banks are stronger than their U.S. rivals, analysts say. Here's why...

European banks are stronger than their U.S. rivals, analysts say. Here’s why – UnlistedNews

The Faro office building at the headquarters of Banco Santander SA on Thursday, February 2, 2023.

European banks look stronger and more attractive than their American counterparts by many metrics, according to officials and analysts speaking at the Institute of International Finance conference in Brussels this week, adding that regulation and collaboration are still needed to fuel growth in the region.

The largest bank in the US is worth what the top nine or ten European banks are due to weaker growth and less profitability since the 2008 financial crisis, Ana Botín, chief executive of Spain’s Santander Group, told CNBC at Tuesday’s event.

However, major European banks have better levels of credit default swaps, a form of insurance for a company’s bondholders against default, “which makes fixed income investors think that the risk of our debt is less than the one of the best banks in the US”, loot added.

The recent volatility that led to the sale of swiss credit to UBS was not evidence of a systemic banking crisis, he said, but mismanagement and liquidity problems at specific banks.

“We are in a very strong position in terms of capital, liquidity supervision, protection of our clients’ data. But we also need a little more capacity to support growth so we can be more profitable,” he said.

“What we need is a fundamental rethinking 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 prudent, we’re not saying we should backtrack on that, but also being able to finance growth,” Botín continued, adding that this would be a key issue at the IIF conference.

European banks are “safer, stronger and cheaper” than American ones, said Davide Serra, chief executive of Algebris Investments, noting the higher liquidity ratio of European banks, around 160%, compared with 120% in The USA.

“In a way, banks in the US have been further optimizing their deposit base. And now with the Fed [Federal Reserve] By keeping interest rates higher, people just want to get paid back on their deposits. So they have options with the money markets or with the movement of cash,” he said.

“At the same time, in the US, people are reminded that, you know, not all banks are born equal. And just because you have a sign called a bank, you’re not as safe, as you know, JPMorgan or Morgan Stanley”.

That will lead to further consolidation in the US, he said, after a series of regional bank collapses this year, with banks seen as safe to profit.

“Overall, I think the opportunity is clear. For strong banks in Europe and in the US, with Europe much, much more attractive, there has been zero deposit outflow, zero issuance… And therefore, to be honest, after 10 years of restructuring, I think Europe is the place to be.”

Banking union delay

José Manuel Campa, president of the European Banking Authority, pointed to the low valuations of European banks, but said they had improved amid turmoil in the broader sector and as higher interest rates boost their yields.

“I think as interest rates rise, if [European banks] continue to demonstrate that their business model is sustainable, we should also see medium-term improvements in those valuations,” he said.

For Campa, any further consolidation in European banking must have to do with creating better banks and “advancing in the promotion of a more integrated single market in the European Union so that we can have cross-border banking and more efficient services for customers Europeans”.

The EU has a long overdue plan 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 ongoing about a Capital Markets Union.

Both Botín and Campa said pushing through these complicated negotiations was important for the future of the sector, and Botín said they could help boost European growth.

European banks are safer and stronger than their American counterparts, says the CEO of an asset management firm

“There is one thing we could do in Europe to have higher growth, which is securitization,” he said.

Creating new rules on securitization, the creation of marketable securities from a pool of assets, which remains a controversial issue after the subprime crisis, is key to the proposed EU Capital Markets Union .

“The securitization market in Europe is 6% the size of the US market. Banks are no longer the best holders of credit,” Botín said.

“In many cases, we can originate, 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 the Capital Markets Union, for example , which could move faster and help further growth,” Botín said.

Sara Marcus
Sara Marcushttps://unlistednews.com
Meet Sara Marcus, our newest addition to the Unlisted News team! Sara is a talented author and cultural critic, whose work has appeared in a variety of publications. Sara's writing style is characterized by its incisiveness and thought-provoking nature, and her insightful commentary on music, politics, and social justice is sure to captivate our readers. We are thrilled to have her join our team and look forward to sharing her work with our readers.


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