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Large bank M&A across Europe is now inevitable

As credit losses hit banks hard over the next three quarters, one large failure could spark a systemic crisis. Consolidation is the only way out.


Euromoney asks the chief executive of one large European bank for an outlook on the economy, likely credit losses and potential mitigants.

He expects the European economy to contract maybe 8% in 2020 – although his own economists are regularly updating their estimates in one worrying direction. The worst quarter will be the second, but social distancing will continue to hurt many businesses into the third and fourth quarters of 2020.

He hopes for a recovery starting in the first quarter of 2021.

Credit losses will be large over the next three quarters. Bank accounting and regulation have proved highly pro-cyclical, thanks to IFRS 9 in Europe and the FASB current expected credit losses model in the US. His bank’s balance sheet has not shifted but credit and market risk-weighted assets have seen huge increases, testing capital.

Consumers in Europe may not have come into this as highly indebted as those in the US, where unemployment will be much worse, but the biggest mitigant he sees against crippling hits to banks from corporate failures is government support and nationalization, starting with airlines.

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