The lights of Frankfurt am Main's banking district skyline sparkle in the last sunlight.
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European banks face an even tougher challenge in closing the profit gap with their U.S. rivals as Wall Street enters a new era of financial deregulation under second-term President Donald Trump.
Eurozone and UK financial institutions have been hobbled by poor profitability and economic weakness since the 2008-2009 global financial crisis, while US banks have been particularly vulnerable as European rivals retreat. It has soared in value and taken market share in the investment banking sector.
Some banks have started to regain lost ground this year. Until this week, European stocks had outperformed U.S. stocks, raising hopes that the U.S. will level the playing field as it introduces some elements of Basel III regulations that require U.S. banks to hold capital. .
The situation has completely changed with Trump's victory in this week's presidential election. JP Morgan, goldman sachs and morgan stanley The STOXX European 600 Bank Index fell more than 1% for the week, while stock prices soared across the board.
“The prediction is simple: US deregulation and tax cuts contrast sharply with Europe's tough scrutiny and low interest rate woes,” said David Materazzi, CEO of Italy-based automated trading platform Galileo FX. ” he said.
“If U.S. banks get the policy support they expect, they could potentially increase lending volumes and optimize capital in ways that European banks cannot currently compete with,” Materazzi said.
Since the beginning of 2010, European bank stocks have fallen 10%, while U.S. financial institutions have more than tripled.
The European Central Bank estimates that euro area banks' return on equity hovers around 5%, compared to 10% in the US, which is due to increased fee income in the US and European banks still It is said to be related to past bad debts that it is working on.
Will you use it for lobbying activities?
There are already signs that European politicians are preparing for a new situation under the Trump administration.
Swiss Finance Minister Karin Keller-Sutter said on Thursday that she had discussed the outlook for U.S. banking regulation with British Finance Minister Rachel Reeves.
“We were told in advance that a wave of deregulation was coming to the United States,” he told Reuters, adding that both sides agreed it was important to balance competitiveness and stability. Ta.
A bank executive told Reuters the wave of deregulation would give European banks some leverage in lobbying for relief from already tougher regulations.
The U.S. banking industry is set to suffer as President Trump introduces Republican regulators to ease capital controls and merger approvals, further diluting a controversial late Basel III proposal aimed at forcing large financial institutions to increase their capital holdings. I'm looking forward to it.
But the outlook is highly uncertain because the pace of deregulation will be determined by new regulators and key policymakers that Trump has not yet appointed.
Michael Ashley Shulman, chief investment officer at Running Point Capital Advisors, said President Trump's 2010 Dodd-Frank financial reform law tightened regulations on banks to avoid another 2008-style collapse. I think there is a possibility that some parts of it may be withdrawn.
“Furthermore, corporate M&A is expected to increase due to FTC (Federal Trade Commission) deregulation, which should lead to higher investment banking fees,” he told Reuters.
“We also expect to see an increase in local bank mergers. By comparison, banks in Europe, where regulatory oversight is more stringent, will compete with one hand tied behind their backs.”
The long-awaited M&A of European banks resumed this year, with the possibility of an acquisition by. unicredit of Commerzbank and Mr. BBVA make a bid SabadellHowever, neither agreement is guaranteed due to political tensions.
Filippo Maria Alloatti, head of financial credit at Federated Hermès, said U.S. banks would be the main beneficiaries under the Trump administration. But international banks with large U.S. operations, such as Barclays, Deutsche Bank and UBS, should also be “positively affected,” he said.
