Wednesday, September 04 15:42:55
The chief executives of Deutsche Bank, Societe Generale and Unicredit have defended the need for large banks even as global regulators seek to force lenders with large balance sheets to shrink.
Regulators seeking to improve safety of the global financial sector have pushed banks to cut the size of their balance sheets and shore up their capital cushions, placing an additional burden on bank profits which are already strained by the low interest rate environment
A banking conference in Frankfurt on Wednesday heard the case for the defence, with SocGen chief Frederic Oudea saying large banks were needed to maintain Europe's capacity to finance large companies and its infrastructure.
"On these markets, the capacity to take this underwriting risk, scale matters. I believe that we need players which are able to tell the credit story of European companies or governments," Oudea told the conference.
Unicredit boss Federico Ghizzoni said only banks with a certain size could afford to make investments, such as the sum of between 700 million euros ($921 million) and 800 million his institution spent on information technology to meet regulatory standards.
"How to combine these forces and balance it with 'too big to fail', will be one of the challenges of the banks' management of tomorrow," Ghizzoni said, referring the problem of how to shelter taxpayers from having to stump up for a major bank bailout.
Although some banks are too big to be allowed to fail, Deutsche Bank co-chief Anshu Jain said there was a need for scale so banks can operate on a global basis.
"There is a minimum scale for efficiency. It is a little misleading to think you can be small and globally competitive," Jain said.
Falling revenues and the burden of regulation make consolidation in the banking industry inevitable, Jain told the conference. "There is a clear consolidation of the industry and there is a simplification of the business model."
The banks which will survive are either regional lenders, such as German savings banks, banks with very focused business models - such as in investment banking or asset management - or those with a global presence, Jain said.
"There is a tremendous opportunity to take market share organically but, frankly, inorganically as well," Jain said, a reference to the possibility of acquisitions.
Asked what role Deutsche Bank could play in consolidation, Jain said: "I think I was very clear that there is a lot of work that lies ahead for the banking industry and Deutsche Bank in particular".
Deutsche Bank is still working on meeting global rules on capital and risk, Jain said, adding: "We are not at the finishing line."
While before the crisis it was difficult to differentiate between a state-controlled Landesbank and Deutsche Bank, the industry has now forced a change which will benefit banks with sound brands and strong capital bases, he said.
"No German bank is as global as we are, and no global bank is as German as we are," Jain said.
Although consolidation is likely to continue, Jain said the industry still lacks a mechanism to make large banks safer.
"I will not stand here and pretend that the 'too big to fail' model has been solved," Jain said. "The entire sector has to get to the point that no matter what takes place the odds that we will come back to the taxpayer will be reduced to nothing."