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For a decade and a half Europe’s banks have been left behind by their US rivals. As America’s finest have expanded their balance sheets and their stock market valuations aggressively, European lenders have been hamstrung by a slow growing economy, more cautious regulators and mounting geopolitical tensions.
But the worms may be turning. Even as Donald Trump’s America piles on the pressure — unravelling valuable transatlantic ties and relaxing the rules for Wall Street rivals — three of Europe’s most ambitious banks are taking three very different approaches to propel their own growth.
At Spain’s Santander, Italy’s Intesa Sanpaolo and France’s Société Générale, a trio of strategic initiatives are enlivening a sectoral resurgence evidenced by rebounds in share prices and profitability. (The best institutions now command returns on tangible equity approaching 20 per cent. And after years of underperformance, the Euro Stoxx banks index rose close to 80 per cent last year, more than double the average of US groups.)
The chunkiest and most high-profile gambit is Santander’s $12.2bn purchase of US rival Webster Financial. Investors greeted last week’s announcement with some scepticism in part because of the poor record of European groups in buying US banks. Blow-ups or retreats are common: think HSBC and Household; or BNP Paribas and Bank of the West.
But Santander executive chair Ana Botín is convinced that this time will be different. Webster, like Santander’s current US operation, is concentrated in the north-east of the US, giving the combined group a sharp regional focus and strong local market share (8 per cent, says Botín).
More tangibly, Webster’s low-cost deposit base will make Santander’s funding cheaper and dilute the risk in its car finance portfolio. Promised cost cuts — equivalent to 58 per cent of Webster’s overheads — feel punchy, but Spanish banks have a tradition of efficiency (Santander’s cost-income ratio is a measly 41 per cent) so they may not be entirely implausible.
The deal is hardly modern — buying a branch-based operation feels very 20th century, especially when the smart money is betting on fintechs to disrupt traditional banks. But there may yet be room for a canny operator like Santander to win over US clients that have felt poorly served by domestic behemoths.
Intesa Sanpaolo’s avowal to boldness is less obvious, but no less significant. The Italian lender is midway through a €9bn project to turn itself into a cloud services provider — initially for itself, but also, in time, for third parties. Like many banks the restructuring has meant closing its mainframe computer system but, unlike many banks, it also means diversifying away from a reliance on US cloud companies. Although Google and Microsoft provide it with external cloud services, Intesa is simultaneously expanding homegrown capacity — boosting its own and Europe’s autonomy, in line with the exhortations of the European Central Bank to reduce banks’ reliance on US cloud groups.
But it is Société Générale, the European bank that saw a zero-to-hero rebound in its valuation last year, that lays claim to the funkiest initiative. According to Jean-Marc Stenger, chief executive of the group’s digital assets unit SG Forge, it is currently the only bank in the world to have issued its own stablecoins.
The two alternative currencies — one backed by euros, the other by dollars — were a natural follow-on from SG Forge’s innovations in issuing bonds and structured products on the blockchain. The stablecoins allow client settlement to take place quickly, smoothly and cheaply, rather than deferring back to cash.
The bank reckons its status as a fully regulated bank, complete with tight know-your-customer rules, gives it an advantage over the two operators that dominate the stablecoin market, Tether and Circle.
The stamp of approval given to stablecoins by the EU’s Markets in Crypto-Assets rule book and the US Genius Act are expected to dramatically accelerate adoption. Although other banks are experimenting with stablecoins as part of sectoral collaborations, for now at least SocGen has a clear head start.
Individually, these lenders won’t change the world. But the ambition of their initiatives, supported by valuations not seen since the global financial crisis, suggests that European banks are finally finding their mojo again. All being well, that will be good for shareholders and the European economy alike.
patrick.jenkins@ft.com