According to analysts, European banks are stronger than their US peers. Here’s why

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

Bloomberg | Bloomberg | Getty Images

European banks appear stronger and more attractive than their US counterparts in many ways, according to officials and analysts speaking at the Institute of International Finance conference in Brussels this week. They added that regulation and cooperation are still needed to spur growth in the region.

The largest bank in the US is worth as much as the 9 or 10 largest European banks due to weaker growth lower profitability since the 2008 financial crisis, Ana Botín, CEO of Spain’s Santander Group, told CNBC at Tuesday’s event.

However, the top European banks have better credit default swaps, a form of hedging a company’s bondholders against default, “which means bond investors consider our debt to be less risky than that of the best banks in the US,” Botín added.

The recent volatility that led to selling CreditSuisse to UBS is not proof of a systemic banking crisis, but rather of mismanagement and liquidity problems at certain banks.

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

“What we need is a fundamental rethink of what banks should be in the new economy, in a world that needs growth. And it’s really important to strike a balance between caution and caution. We’re not saying we should resort to it, but also to be able to fund growth,” continued Botín, adding that this will be a key topic at the IIF conference.

European banks are “safer, stronger and cheaper” than US banks, said Davide Serra, chief executive officer of Algebris Investments, who highlighted the higher liquidity ratio of European banks – around 160% – versus 120% in the US

“In a way, banks in the US have optimized their deposit base more. And now with the Fed.” [Federal Reserve] With higher interest rates, people just want to get paid for their deposits. So you have options in the money markets or in the circulation of cash,” he said.

Botín of Santander: This is not a banking crisis

“At the same time, people in the US are being reminded that not all banks are born equal. And just because you have a sign that says “Bank” doesn’t make you as safe as JPMorgan or Morgan Stanley.

This will lead to further consolidation in the US, he said, after a series of regional bank failures this year, with safe-haven banks benefiting.

“Broadly speaking, I think the opportunity is clear. For the strong banks in Europe and in the US, with Europe being much, much more attractive, there was no deposit outflow, no issue… And so, to be honest, after 10 years of restructuring, I think Europe is the right place .”

Banking union delay

European banks are safer and stronger than their US counterparts, says CEO of wealth management firm

“There’s one thing we could do in Europe to get higher growth and that’s securitization,” she said.

Creating new rules for securitization, creating tradable securities from a group of assets – which remains a contentious issue after the subprime mortgage crisis – is key to the EU’s proposed Capital Markets Union.

“The securitization market in Europe is 6% larger than the American market. Banks are no longer the best lenders,” said Botín.

“In many cases, 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, that could move faster.” and contribute to higher growth,” Botín said. According to analysts, European banks are stronger than their US peers. Here’s why

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