Movers And Shakers In Europe

The "statics" including Andorra, Austria, Belgium, France, Iceland, Liechtenstein, Slovakia, Spain and the United Kingdom show little change or the development of particular trends.

These dull statistics mask the drama of France's Credit Lyonnais which, perhaps surprisingly, given its hunger for state funding, has only slipped two places, from 16 to 18.

In Spain too there has been the interest of the effects of increased competition following a consolidation wave that has put pressure on profit margins forcing banks to modernise and innovate.

The "movers and shakers" are led by Germany, which has seen a steady march up the league. This group includes Denmark where three banks, Bikuben (in its new guise from the merger of Girobank and Sparekassen Bikumen), BRFkredit and Jyske Bank have moved the country up the ladder.

 

Greece, Luxembourg, the Netherlands, Norway and Sweden have seen their banks make general gains. Slovenia can be singled out for its improvement in the rankings.

Switzerland leads the group of European "variables" that includes Hungary, Poland, Portugal and the Czech Republic. While Switzerland's top banks have made good gains, those at the bottom of the list have taken to the slopes.

The weaker banks are suffering the effects of poor asset quality, mainly as a result of real estate exposure that went bad.

Unlike Spain and even Switzerland, which have charted a steady course in the wake of consolidation, Italy has seen its banks slipping. Bulgaria, Croatia, Serbia have thrown up a disappointing performance.

Despite their good performance in The Banker's table international bank rating agency Standard & Poor's say in a special report on German banks that they are facing "challenging times." As a consequence of the challenges. Standard & Poor's expects far-reaching structural changes in the German banking system in the coming years.Standard & Poor's argue that shareholders are less willing to accept the kind of returns that German banks have historically produced.

In the past the sector was characterised by a relatively high degree of stability. Conservative accounting standards provided banks with an enormous amount of flexibility to smooth earnings.

While UK banks gave a pre-tax return on capital of 27.37 per cent in 1995, German banks managed only 12.59 per cent, according to The Banker's research.

German banks are facing greater pressure, on the one hand from shareholders demanding better returns, and on the other hand growing international competition for funds and the erosion of the comfortable links between banks and industry which, including growing disintermediation, are expected to take their toll on margins.

The threat of these challenges is felt to be behind the scramble by German banks into investment banking and asset management activities. Another element not exclusive to German banks is being burdened with bricks and mortar in an expensive distribution system when customers and costs dictate low-cost electronic banking will be the future.

There is no level playing field when measuring the size of success of European banks. The Banker endeavours to furnish its readers with an acurate assessment of the banks in it's European 500 league table. However, governments move the goal posts.

In France, for example, deregulation has unleashed a type of competition that is "uncommonly fierce and not entirely equitable", according to analysts.

"Commercial banks in particular have suffered from the increasing aggressiveness of mutual banks and state-owned banks."

The most publicised of these moves is the French government's attempts to salvage something from what was once the largest bank in Europe.

The Credit Lyonnais problems arise from too rapid expansion, particularly into the property market, in the 1980s. This laxity of state control has been succeeded by a succession of state bailouts.

The latest of these was mooted in August when the Establishment Public de Financement et de Realisation (EPFT) was reported to be after an additional Ffr7 billion ($1.37 billion), a figure that apparently exceeded even the largesse of the French government which was said to be offering Ffr2 or Ffr4 billion. Observers believe that the current state of French banking industry could lead to take-overs of the weak by the stronger establishments.

What is perhaps more surprising is that lack of outcry at a European Union level. The Commission has shouted loud when airlines have been subisdised - but given way. However, pouring taxpayers' money into a banking black hole seems to go un-remarked.

More peculiar is the absence of outcry about the French government's behavior from banks that have no state ownership or support.Banks from Britain, the traditional cross channel rival, have seen their numbers thinned by the authority's apparent insouiance to the failure of a pillar of the establishment like Barings. But they fail to raise a twitter of anxiety in the defence of market economics or the French taxpayer.

France may do well to take a leaf out of the Spanish book. A trend of consolidation has continued apace in Spain over the last few years. In the past seven years the seven largest private-sector banks have merged into four big groups.

However this has done nothing to reduce the competition, with more banks competing at a national and regional level than ever.

Deregulation has led a drive to modernise, innovate and improve customer service but the lower margins have had to be made up from other activities and cutting overheads.

Reprinted with permission from The Banker, a Financial Times publication.

There is no level playing field when measuring the size of success of European banks. The governments move the goal posts.