European bankers should be ashamed (Finrestra podcast episode 8 transcript)

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Transcript:

“Hello and welcome to another episode of The Finrestra Podcast. My name is Jan Musschoot.

This is our first episode of December, so here is a quick recap of the European financial news of November 2021.

  • Euro area inflation remains far above the ECB’s 2 percent target. Dutch inflation was 5.2 percent, a figure not observed since 1982. The German inflation rate was the highest since 19 ninety 2. Ironically, the union of the ECB’s own employees wants higher wages due to inflation.
  • In other record news, the French stock market index CAC 40 reached a new all-time high. It finally surpassed its peak from the year 2000.

There was also consolidation news:

  • BBVA wants to buy the stake of Turkish Garanti BBVA bank it doesn’t own yet
  • KBC buys the Bulgarian banking activities of Raiffeisen Bank International

The news of record high stock prices brings us to the topic of this episode: European bank CEOs should be ashamed.

Why?

Because their stocks have been horrible investments. Despite a nice rally in 2021, most large European banks still trade 70, 80 or 90 percent below their 2007 highs.

Or look at banks by market capitalization. The biggest European bank, HSBC, is only worth a quarter of American JP Morgan. And you could argue that HSBC isn’t even really a European bank, as most of its profit is generated in Hong Kong.

What’s the second largest European bank by market cap? Surely it must be a German, British or French one? Nope. It’s actually Sberbank of Russia. Russia, a country with a GDP smaller than Italy’s.

I can hear some CEOs already. How they are victims of low interest rates, low growth, overcapacity. Blah blah blah.

Instead of making excuses, take a hard look at banks like DNB, KBC, Nordea and SEB. Why are these relatively small banks worth more than giants like Deutsche Bank, Société Générale and UniCredit?

I know the answer. But do bank CEOs?

Here’s some free advice. Listen to episode 3 of the Finrestra podcast. And watch the “Bank in two minutes” series on our YouTube channel.

What will you learn? That successful banks focus. Focus on a few countries. Focus on one client segment, or at least on very complementary segments.

In contrast, banks with low profitability are often monsters of Frankenstein. They are part retail bank, part investment bank. They are active in dozens of countries.

They are big, but do they deliver what clients and investors want? The market doesn’t think so.

Now dear listener, before I go, I want to ask you a favor. For an upcoming episode, I would like to talk about Industry, the series about junior investment bankers. I recognized a lot of situations in the series. So if you work in a bank, watched Industry and would like to talk about it, please contact me! This has been another episode of The Finrestra Podcast. If you have suggestions for topics or guests, you can mail me at jan.musschoot@finrestra.com. You can find me on twitter @janmusschoot. Thanks for listening!”

The Net-Zero Banking Alliance (Finrestra podcast episode 6 transcript)

Listen to this episode on Spotify, Apple or YouTube!

Transcript:

“Hello and welcome to another episode of The Finrestra Podcast. My name is Jan Musschoot. We were off last week due to the banking holiday on November 1st. So here is a recap of the European financial news of October.

  • The governing council of the ECB discussed inflation, but central bankers expect no rate hikes in 2022.
  • Italy and UniCredit ended negotiations over the sale of Monte Paschi di Siena.
  • Swedish Handelsbanken will leave Denmark and Finland. This fits into a trend that I discussed in episode 3 of the Finrestra podcast.
  • Volvo Cars had its IPO in Stockholm, one of the largest European IPOs this year
  • French government bonds were traded on a blockchain with central bank digital currency
  • ING phases out its payment subsidiary Payvision
  • ABN AMRO passes on anti money laundering costs to coffeeshops, which can increase fees up to 1000%
  • French bank La Banque Postale will exit oil and gas by 2030
  • Dutch pension fund ABP stops investing in fossil fuel producers by 2023
  • Finally, COP26 started. COP26 is the climate summit in Glasgow. 

And that brings us to the deep dive of this episode.

What do banks do against climate change?

The website Our world in data has a nice overview of the greenhouse gas emissions by sector. The majority of global emissions come from energy use in industry, transport and buildings. Other activities that emit a lot of greenhouse gases include agriculture and the production of cement.

Banking or finance aren’t explicitly mentioned. Not surprising, because you only need an office and a computer to generate financial services. So the direct CO2 emissions of banks are negligible.

On the other hand, banks provide funding to coal miners, oil and gas companies, and other carbon intensive industries. Asset managers and pension funds invest in the stocks and bonds of fossil fuel producers. These assets contribute to the so-called ‘Scope 3 emissions’ of the financial industry. According to Greenpeace and the WWF, UK financial institutions are responsible for nearly double the UK’s annual carbon emissions.

But banks can also steer their clients towards lower emissions. They can refuse credit for power plants that burn coal, and divert the money to wind farms. Loans for real estate, both residential and commercial, are a big chunk of banks’ assets. Banks can stimulate borrowers to make buildings energy-efficient.

To formalize their climate commitments, 50 European banks have joined the Net-Zero Banking Alliance. This alliance is convened by the United Nations and led by the banking industry. The members of the Net-Zero Banking Alliance commit to transition their lending and investment portfolios to align with net-zero by 2050. The signatories include sustainable banks like Triodos and GLS Bank. But without the big banks, this initiative wouldn’t have much effect. However, the CEOs of most large European banks have also signed the Commitment Statement of the Net-Zero Banking Alliance. Members currently include global systemically important banks such as HSBC, BNP Paribas, Santander, Deutsche Bank and UniCredit. So far, no Belgian banks have joined.

Is the Net-Zero Banking Alliance yet another case of greenwashing? Is it all blah blah blah, as Greta Thunberg would say? It shouldn’t be.

Banks that join the Alliance have to disclose targets on how they will support the temperature goals of the Paris Agreement. These targets will be reviewed to ensure consistency with climate science. Everybody will be able to check whether banks keep their promises, because they  have to report the emissions of their lending and investment portfolios annually.

This has been another episode of The Finrestra Podcast. If you have suggestions for topics or guests, you can mail me at jan.musschoot@finrestra.com. You can find me on twitter @janmusschoot. Thanks for listening!”

Go big or go home! (Finrestra podcast episode 3 transcript)

Listen to this episode on Spotify, Apple or YouTube!

Transcript:

“Hello and welcome to another episode of The Finrestra Podcast.

My name is Jan Musschoot.

The topic of today’s episode: Go big or go home!

According to economic theory, banks have good reasons to expand abroad. Bigger banks should benefit from economies of scale. A broader geographic footprint results in a more diversified loan portfolio. So multinational groups should be more resilient against economic downturns.

However, cross-border expansion is not what we observe in the real world. In fact, multinational banks have been selling their foreign subsidiaries for years. Earlier this year, American Citibank announced that it would exit retail banking in 13 countries, most of them in Asia. Last year, Spanish bank BBVA sold its unit in the United States.

Banks are also selling their foreign activities in Europe. Here are some examples, all from 2021.

British HSBC was so desperate to get rid of its French retail bank, that it sold the unit for one symbolic euro. Dutch ING also plans to leave the French retail market. That same ING has sold its retail bank in Austria. Dutch Rabobank decided to wind down its Belgian retail activities, as it couldn’t find a buyer. British NatWest and Belgian KBC have announced they would exit the Republic of Ireland. 

Bankers have good reasons to leave foreign markets. Because policymakers are scared of “too big to fail” banks, so-called systemically important banks need larger capital buffers. More countries also means higher costs for reporting and compliance. Banks have learned that there are few synergies between countries, even for branchless banks that only offer online services, like ING and Rabobank. 

That’s why there is a clear trend towards deglobalization.

But that’s not the end of the story. Not all banks are returning to their domestic past.

Economies of scale are a thing, but not in the sense that bigger is always better.

What you want is to have scale within a market.

A good example is Societe Generale. The French financial services group sold most of its Central and Eastern European units. But SocGen kept its subsidiaries in the Czech Republic and in Romania. In both countries, these banks are the third largest in the market. Hungarian OTP sold its small subsidiary in neighboring Slovakia to KBC-owned CSOB. But OTP has also recently signed a deal to buy the second largest bank of Slovenia. Merged with its existing Slovenian subsidiary, it will become the market leader. And this silent consolidation isn’t limited to the East. French Credit Agricole has been gradually increasing its market share in Italy, for example.

So while European policymakers despair at the lack of cross-border mergers and acquisitions, the much needed consolidation is happening. Banks are reducing their geographic complexity.

And some groups have become robust multinational banks that have a significant market share in multiple countries.

If you want to discuss banks’ strategy, you can find me on Twitter @janmusschoot.

To learn more about our research and courses, check out our website, finrestra.com.

Thanks for listening!”

Financial news January 2022

As always, I start the first Finrestra podcast episode of a month with a selection of the financial news of the previous month. Listen to the episode of 7 February 2022 on Spotify, Apple Podcasts or YouTube.

Financial news November 2021

I also covered the news in the first Finrestra episode of December:

Financial news October 2021

Green and ethical banks in Europe

European banks with an explicitly green or sustainable profile:

Ethical banks:

See also:

Febea (European Federation of Ethical and Alternative Banks and Financiers)
GABV (Global Alliance for Banking on Values)

Banking on YouTube

I’m trying something new. I’ve started making videos about banking, monetary policy and sustainable finance.

I’m still trying to figure out the best format. But I already like the ability to use graphs and pictures. Compared to blogging, video is less nuanced. For example, you can’t link to all sources. But maybe that’s an advantage.

Here’s the first one, let me know what you think!