In the dark days following the Lehman Brothers collapse, predictions gathered pace that the new global financial order would see foreign investors remaining in their more liquid developed markets, in a snub to emerging markets, in particular. But this home bias – coupled with more restrictive financial regulation – has been most severe within Europe amid the collapse of non-resident holdings of neighbouring states’ sovereign bonds and foreign bank deleveraging.
European bank executives are faced with a new normal where efficient capital deployment, cost control and a less ambitious growth strategy will determine whether lenders are able to generate a return on equity above the cost of capital – at a time of volatile global growth prospects.
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