British banks should be bolder and go looking for new opportunities in Europe.
Deutsche Bank is having to merge to survive. Scandinavian banks Danske and Swedbank have been rocked by money-laundering scandals. Shares in France’s Societe Generale have almost halved in the last year and BNP Paribas has not done much better. Italy’s UniCredit limps from crisis to crisis. We have heard a lot in the last few years about how much trouble British banks will be in after Brexit takes place. Maybe they will be, if we ever get around to leaving. But right now it is banks across the continent that seem to be in bigger trouble.
British banks are in good shape
British banks, by contrast, are in respectable shape. HSBC is one of the most powerful banks in the world. Barclays appears to have settled its management issues and has come up with a mix of domestic and capital-markets banking that works. Lloyds has come back from is catastrophic merger with HBOS and is firmly on the path to recovery. None of them are doing brilliantly. But they are all financially strong once again.
And yet they are all relatively weak in Europe. HSBC operates in France following its 2000 acquisition of Credit Commercial de France, and has about 800 branches across the country. But apart from a few units in places such as Gibraltar and Malta, and also in Switzerland, that is about it. None of the British banks has a major presence in any of the continental markets. That is surely a weakness. For all its troubles, Europe remains one of the largest economic regions in the world and one of the wealthiest. With its ageing populations, and cosy markets with relatively little competition, and not much in the way of innovation, there should be plenty of scope for revitalising troubled lenders. UK banks could do well in many of those markets.
Why not launch a bid for one of the continent’s troubled lenders? After all, for all its problems in the last decade Deutsche Bank is still massively strong in its home market, with a leading position as lender to Germany’s small and medium-sized companies. If that is not a potentially lucrative banking market it is hard to know what is. Danske and Swedbank are both strong in their domestic economies, and Scandinavia remains one of the most robust economic regions in the world, and one where British companies have traditionally felt at home. The French economy is going through a rough patch, but President Macron’s reforms may eventually bear some fruit. And the Italian banks may not be in as bad shape as they appear on the surface.
Time to rediscover the takeover
The financial crash has understandably made banks nervous about takeovers. RBS came badly unstuck after a whirlwind round of acquisitions, and the Halifax-Bank of Scotland merger that created the ill-fated HBOS was just as bad. And yet before that they often worked out quite well. HSBC made a big success of its acquisition of the old Midland Bank in this country and from many of its other deals around the world. JP Morgan Chase, formed from JP Morgan and Chase Manhattan, has been a success. Santander did well from buying the old Abbey National to give it a base in the UK.
Banking acquisitions don’t have to be a catastrophe. Done right, they can prove a huge strategic success and deliver great returns to shareholders. There are big opportunities in Europe right now.
Our banks should be bolder, and start to move more aggressively into the rest of the continent. Instead of fretting all the time about how Brexit might affect their business they should expand across Europe. HSBC buying Deutsche and Barclays buying Swedbank would put those banks in a far stronger position –and the City, too.