European Parliament elections and a new European Commission could lay the groundwork for cross-border bank mergers from next year, Oudéa tells Euromoney.
The CEO, who is also president of the European Banking Federation, sees a good chance that the EU will prioritize its banking and capital markets union reforms from next year – including an EDIS.
He says clearer progress on that front will then allow banks to do their part in integrating Europe’s financial sector: pre-empting a longer-term move to bigger and more pan-European capital markets.
“A roadmap can allow players to anticipate closer European financial-sector integration, and start to build a business model that will benefit from that roadmap,” he says.
The chief executive was speaking to Euromoney as part of the magazine’s 50th anniversary coverage.
“We should have a few pan-European diversified banking models, the JPMorgan, Bank of America or Citi of Europe: multi-local banks with a strong foothold and a broader base in retail, with corporate and investment banking, and perhaps asset management,” he continues.
Oudéa sees more European banks with a balance sheet of about €2 trillion: similar to these US banks, and to HSBC and BNP Paribas. SocGen’s balance sheet is around €1.3 trillion today.
This strikes a somewhat more upbeat tone than that of Jean Pierre Mustier, the former SocGen banker now in charge of UniCredit. Reports emerged last spring that UniCredit was exploring a merger with SocGen.
Europe will struggle more than expected, given the political environment, in building a new process of integration- Frédéric Oudéa, Société Générale
However, Italy’s biggest bank has not seen a relative increase in market capitalization since – despite operational performance that has, to a greater extent than French banks, beaten expectations – in part due to the formation of a populist governing coalition in Italy last May.
Mustier consequently told Euromoney in November there could be “no non-organic evolution of the group [for] three-to-four years”; in effect dismissing the prospect of a merger between UniCredit and another bank until 2021 at the earliest.
After 2020, however, Oudéa thinks this year’s European elections and a new college of European Commissioners for the 2019-2024 term could be a trigger for mergers.
“I see two avenues ahead,” says Oudéa. “One: a European deposit insurance scheme is on the agenda of the European Commission and the European Parliament, and at least one of the priorities; and there is a debate on whether mergers make sense, for Europe to have fewer banks.
“Or, two, there is no willingness to move forward. The jury is out.”
This also contrasts to Mustier’s view that the banking union – or at least the key common deposit insurance part of it – will not reach completion in the next few years, or ever, due to the persistent differences in banking risk across the eurozone.
In Oudéa’s view: “Europe will struggle more than expected, given the political environment, in building a new process of integration. We can doubt that the big topics will move very far.
“In that situation, the question is how can Europe still demonstrate it wants to move forward? As in 2013, the banking union may be the most obvious project that people can agree on. It has a limited political price. Maybe it will be the same this time.”
Oudéa continues: “We are getting ready to be in a position of strength, for if and when there’s a consolidation process.
“There are too many banks in Europe. Intellectually, it would be good for the sector to have fewer banks, but this will take time. The overall regulatory framework at this stage does not allow this momentum to come. There’s an idea of an integrated market when, in practice, there is a significant level of fragmentation.”
He adds: “I cannot see how there will be enough momentum before the end of 2020. All banks, in addition, have so much to do on their business models in this period.”
Yet Oudéa is also relatively optimistic, compared with other bank chief executives, about the chances for digitalization to begin facilitating mergers. He says the advent of technology, such as facial recognition, to replace nationally designed paper-based processes, could make it easier to harmonize account-opening processes between France and Germany, for example.
“I can imagine more capacity to mutualize IT systems in a consolidation process – it will be easier in five years,” he says.
Oudéa acknowledges a less certain political environment and lower prospects for growth – and therefore interest-rate rises – has clouded the environment for eurozone banks during the past year.
However, he does not claim that the eurozone regulatory environment has hardened during this period. The bank’s move to a scrip dividend in February, for example, was due to its slower-than-expected trajectory towards its 12% tier-1 capital target, not because of supervisory pressure.
While the regulatory pendulum has swung in the other direction in the US, the European Central Bank (ECB) is still pushing for an acceleration in banks’ reduction of their non-performing-loan portfolios possibly to facilitate a common deposit insurance framework.
However, the decade-long post-crisis process of restructuring the global and European regulatory framework is coming to an end, says Oudéa, with the implementation of Basel IV and finalization of the ECB’s review of bank’s internal risk models.