The chips are moving again on the European banking board. The merger of CaixaBank and Bankia in Spain is emerging as a first step in the wave of bank mergers that Brussels and Frankfurt are so eager to do.
The oligarchs that hold control over the banking system allege that crises are a great opportunity to form transnational financial groups that allow “diversifying risks and avoiding competition problems”. Except that risk creation and monopoly is something bankers have learned to create very well, although they are not too eager to accept responsibility for the negative consequences those two practices bring upon society.
The President of the ECB, Christine Lagarde, urged partners of the single currency region to accelerate the creation of the Banking Union and promote “transnational integrations” in the eurozone.
The message from the European Central Bank (ECB) is clear and insistent. As early as January, Andrea Enria, the body responsible for banking supervision, anticipated that the leaders of European banks were considering “consolidation strategies.”, and she sent a message to the sector:
“There is no impediment that we want to put in that way from the side of the supervisor.” The institution sees mergers as a way to end the excess of entities in Europe, increase bank profitability and diversify risks.
The ECB’s encouragement to such operations intensified in the wake of the pandemic. The institution decided to pave the way for them in the summer by eliminating obstacles, for example, in capital requirements.
The supervisor released a guide on mergers to set an approach, which it submitted to public consultation. The sector considers that with this move the ECB wanted to convey unequivocally that, far from penalizing them, the institution encouraged monopoly.
Sources consulted indicate that the ECB was of the opinion that the EU wasted the financial crisis of 2008 to achieve greater integration of its entities and some unease after seeing how large operations such as Commerzbank and Deutsche Bank were frustrated.
Commerzbank, in fact, was under the scrutiny of the Dutch ING and the Italian Unicredit. But regulatory hurdles prevented those options from thriving either.
“The competent national authorities, without a Banking Union, will greatly protect the capital and liquidity in that country,” said the CEO of ING, Ralph Hamers.
In fact, last year saw the lowest level of transactions within the European Economic Area since 2009. According to S&P, there were only 40. And of the 16 largest transactions, ten were between entities in the same country.
The ECB awaits a new wave of mergers that will reduce excess capacity in the eurozone and improve the performance of European banks. This, according to The Banker, is the least profitable in the world, with a return of 6.71%.
The economic leaders of the European Commission asked Vice President Nadia Calviño, who was in Brussels on Monday, about the merger between CaixaBank and Bankia.
Calviño said that the community institutions see this operation as the first step in “a consolidation process” at the European level that they have been asking for for some time.
The ECB did not want to comment on the operation last Thursday. His vice president, Luis de Guindos, insisted, however, that the pandemic has accentuated the “main vulnerabilities” of European banks: their low profitability and valuation, says Guindos.
“Consolidation is one of the instruments,” he said. At his side, Lagarde insisted that he would like to see a “fully developed Banking Union”, with cross-border and resolution mechanisms.
The finance ministers of the eurozone addressed last week the urgency of giving new impetus to the Banking Union. French Bruno Le Maire asked to give the project a boost. “There will be no European sovereignty without a powerful financial system,” he said. The president of the Eurogroup, Pascal Donohoe, recalled that this is a “priority issue”.
Financial sources maintain that the ball is still in the capitals’ court. The rescue fund (Mede) prepared a proposal for a roadmap to create a cross-border European financial market between 2020 and 2027 with three keys: the creation of a community deposit guarantee fund, the limitation of sovereign debt in the balance sheets of banking, and the removal of barriers to liquidity and the movement of capital between countries within banking groups. The objective, according to that document, was a “necessary” consolidation of the financial system.
The Director-General of the Association for Financial Markets in Europe (AFME), Jacqueline Mills, considers that “one of the main obstacles to cross-border consolidation in the EU continues to be the lack of cross-border liquidity exemptions”, as well as the “absence exemptions of this type ”for capital and regulatory requirements. “These obstacles restrict the efficient flow of capital and liquidity within cross-border institutions,” she adds.