The fissures in the cross-border European banking model

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The fissures in the cross-border European banking model

In general, the non-domestic operations of many European banks fail to deliver profits, much to the ire of besieged shareholders. Tighter regulation and a higher cost of capital herald a new dawn for European banks' intra-regional and emerging market aspirations.


In the dark days following the Lehman Brothers collapse, predictions gathered pace that the new global financial order would see foreign investors remaining in their more liquid developed markets, in a snub to emerging markets, in particular. But this home bias – coupled with more restrictive financial regulation – has been most severe within Europe amid the collapse of non-resident holdings of neighbouring states’ sovereign bonds and foreign bank deleveraging.

European bank executives are faced with a new normal where efficient capital deployment, cost control and a less ambitious growth strategy will determine whether lenders are able to generate a return on equity above the cost of capital - at a time of volatile global growth prospects. In this context, the cross-border banking model is now under severe strain both within Europe and internationally, amid increased liquidity and capital demands – not to mention eurozone break-up risks.

On Tuesday, analysts at Société Générale shed light on which large European banks are most challenged in this new climate, focusing on European network banks with cross-border commercial and retail interests, in particular, rather than standalone investment banking houses since this business model consumes less capital. The report focuses upon on BNP Paribas, Crédit Agricole, Unicredit, Intesa Sanpaolo, BBVA, Santander, HSBC, Nordea and Danske.


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