Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

ECB's De Guindos says mergers can improve banks' profitability

Published 10/19/2020, 06:05 AM
Updated 10/19/2020, 06:10 AM
© Reuters. EU finance and economy ministers hold informal meeting in Berlin

© Reuters. EU finance and economy ministers hold informal meeting in Berlin

By Jesús Aguado and Emma Pinedo

MADRID (Reuters) - The European Central Bank's vice president called on Monday for further consolidation and cost reductions by euro zone banks to improve battered profitability.

Banks are under pressure in Spain and other European countries to consolidate while facing rising bad loans amid the coronavirus pandemic and low interest rates.

"Removing cost excesses, over-capacity is more necessary than it was before the pandemic. Consolidation is a tool, it is not a goal in itself, but can be helpful in cost savings, in removing over-capacity," Luis de Guindos told a financial event hosted by the newspaper Expansion and consultants KPMG.

Last month's deal between Caixabank (MC:CABK) and Bankia (MC:BKIA) to create Spain's largest domestic bank boosted expectations of a new wave of mergers and acquisitions among Spanish banks. Their numbers have already fallen to 12 from 55 after the 2008 financial crisis.

Earlier in October, Spain's Unicaja (MC:UNI) and Liberbank (MC:LBK) began formal merger negotiations.

More flexibility from the ECB regarding capital requirements could pave the way for more consolidation among banks in Europe.

Italy's Intesa Sanpaolo (OTC:ISNPY) bought Unione di Banche Italiane (MI:UBI), while Spain's Sabadell (MC:SABE) has held informal talks about a possible tie-up, including with BBVA (MC:BBVA) and Santander (MC:SAN), sources told Reuters in September.

On Monday, BBVA's chief executive officer, Onur Genç, said the bank was open to analysing M&A opportunities both "in Spain and somewhere else" if they created shareholder value, although the bank was focused on organic growth.

Santander's chief executive officer, Jose Antonio Alvarez, said at the event the bank was not considering M&A.

Profitability across the euro zone's banks is low and the current economic crisis is expected to further hurt prospects.

De Guindos said that euro zone banks' return on capital (ROE) - a measure of profitability - had declined to around 2% as a consequence of the pandemic, which had led to higher provisions and lower revenues.

Before the coronavirus hit, ROE in the euro zone stood at 5%, De Guindos said.

© Reuters. EU finance and economy ministers hold informal meeting in Berlin

He also said on Monday that European countries were reluctant to re-impose the kind of strict lockdowns seen at the end of March. He stressed that any withdrawal of stimulus measures to support European economies should be done gradually and in a calibrated manner.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.