European banks are in a stronger position than their US counterparts and offer real value to investors, according to speakers at the Institute of International Finance (IIF) conference in Brussels last week.
European banks are “safer, stronger, cheaper” than US banks said Davide Serra, chief executive officer of asset manager Algebris Investments. He stressed that what was important in assessing the comparison between the two was the higher liquidity ratio of European banks – the measure of a bank’s ability to meet its short-term obligations.
This stands at around 160% for European banks, versus 120% in the case of US banks.
At the same time, he noted there is a legacy from recent events where US regional banks have faced collapse. “In the US, people are being reminded that not all banks are born equal. And just because you have a sign called bank, you’re not as safe as JPMorgan or Morgan Stanley,” Serra said.
This will in turn lead to further consolidation in the US, Serra added, following the spate of regional bank collapses earlier this year.
“Overall, I think the opportunity is clear,” he said. “Europe is much, much more attractive. Europe I think is the place to be.”
And José Manuel Campa, chair of the European Banking Authority, endorsed this outlook, highlighting the low valuations of European banks, with prospects for them to grow, making them appealing to investors.
“I think that as interest rates rise, if [European banks] continue to show that their business model is sustainable, we should see enhancements over the medium term on those valuations,” he said.
Campa said any further consolidation in European banking must be about creating better banks as well as “fostering a more integrated single market in the European Union so we can have cross-border banking”.
The EU has been slow to develop a deeper banking union emanating from laws dating back to 2014 which set out to bolster European banks and the European banking system.
The ultimate objective, if it ever fully comes to fruition, is to create a more unified system, with talks still on-going over a Capital Markets Union – essentially creating a single market for capital.
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