Europe is at a turning point. she happens. She’s in the middle of it. However, no one wanted her. We are dealing with an economic pressure drop of historic proportions. However, the reasons for this are not to be found in the banks – but elsewhere.
Europe’s farewell from the top of the important economic blocs should not be imagined as a requiem with organ and string orchestra. The signature tune of the many partial farewells is rather an oppressive silence. Nobody is speaking. nobody cries There is also no one who triumphs. Even those who benefit from European descent keep their hands folded in reverence.
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No one wanted the turning point that is at stake here, and no one proclaimed it. But it happens. The European financial sector, the heart muscle of our economic sovereignty, is beating ever weaker. We are dealing with a historically unique drop in pressure that is not being acknowledged in the media or in politics. The media remain silent out of sleepiness, while politicians deliberately remain silent.
Here are the findings in detail:
Dresdner Bank, once Germany’s third largest bank in terms of total assets, passed away in 2009. Ticked off.
WestLB, formerly the most powerful public bank in the country, was wiped out in the last financial crisis. Requiescat in pace.
The Commerzbank experienced its infirmity in the partial nationalization. The state is not their animator, but their gravedigger.
In 2004, Deutsche Bank – and this is where the matter becomes relevant at the latest – ranked sixth among the world’s largest banks in terms of total assets and is now fighting a losing battle in an international comparison.
UBS and Credit Suisse, UniCredit from Italy and Banco Santander from Spain are also being avoided by international investors as if they had monkeypox. Your stock prices tell the story of a systemic disease.
JP Morgan Chase and Goldman Sachs share prices look strikingly different. The investors rely on “the American way to do it” – also in the financial sector.
The reasons for the decline of the European financial industry are not to be found in the incompetence of bank managers. This time the lords of the money are innocent (after the departure of Carola Gräfin von Schmettow from HSBC Germany there is no longer a woman in the CEO position of a relevant financial institution). With the exception of the Italians, they have put their bank balance sheets in order and significantly increased their equity ratios. They have reduced risk and curbed administrative costs, including at Deutsche Bank, which has traditionally lived the big life.
Gabor Steingart is one of the best-known journalists in the country. He publishes the newsletter The Pioneer Briefing. The podcast of the same name is Germany’s leading daily podcast for politics and business. Since May 2020, Steingart has been working with his editorial staff on the ship “The Pioneer One”. Before founding Media Pioneer, Steingart was, among other things, Chairman of the Management Board of the Handelsblatt Media Group. You can subscribe to his free newsletter here.
1. The war in Ukraine and the sanctions regime wanted and enforced by the Americans have significantly weakened Europe compared to the USA. While the US has organized its energy supply independently, Europe and Germany in particular are hanging on Putin’s needle.
The fear of a Russian energy boycott and thus of recession and company bankruptcies is real. A recession means defaults and these have a direct impact on bank balance sheets.
2. Even without war and Putin, the future prospects for Europe are viewed negatively by investors, which means that they are actually realistic. In particular, the demographic trap, which snaps shut at the latest when the baby boomers retire, is likely to lead to losses in productivity and vitality.
Also read:Gabor Steingart’s guest article – days of chaos at Lufthansa: Passengers have never been exposed to such arbitrariness
3. The great promise of a single European market has never been kept for the financial industry. All nation states continue to act separately from each other. Rome, Paris, Madrid, Brussels and Berlin have not been able to agree on a banking union, a common deposit insurance fund or even a pan-European bank merger. There are a thousand reasons to defend the status quo. Even if it is a status quo on demand.
4. European banks’ assets are not as valuable as claimed. The pros know that. They don’t let themselves be blinded. If you compare the market capitalization of the banks to their book values, you can see the confidence gap. Most European banks have price-to-book ratios below one.
According to the finance portal Onvista, the price-to-book ratio of the German Commerzbank in 2021 was 0.29, that of Deutsche Bank 0.39, that of the Italian UniCredit 0.48 and that of the French bank Crédit Agricole 0.56. For comparison: The major American bank JP Morgan Chase had a price-to-book ratio of 1.79 in 2021.
This means that investors assume that in the event of a crisis – or even a slightly larger interest rate hike by the ECB – these assets on the balance sheets will shrink like a cooling soufflé.
5. The state – as if nothing had happened – regulates and regulates the European financial sector like hell. In the course of the global financial crisis, the banks sought the protective closeness of the state, but the loving embrace of the savior state turned into a stranglehold.
With combined forces is pressed. Today, banks have to meet the requirements of national authorities such as BaFin, the European Banking Authority, the Single Supervisory Mechanism, the European Securities and Markets Authority and national central banks. At least the bureaucracy is world class.
Conclusion: Without a strong financial sector, Europe will never be able to develop as an opponent to China and the USA. But this geostrategic dimension is not seen in Brussels and seen in Berlin but not pursued.
It was Bayer CEO Werner Baumann who recently described the EU as the “Silicon Valley of regulation”. One wishes that were an exaggeration.
