Europe’s banks now have to come to terms with permanent change

EUROPE’S last global banks are caving in to pressure from regulators and preparing to tell investors just how much their aspirations will shrink.

“The European banks were too long holding on to the past and not realising that this change is for good – it is permanent,” said Oswald Gruebel, a former chief executive of both UBS Group and Credit Suisse Group.

“The main reason for reducing global investment banking is that with the capital requirements which the regulators put on these banks, you cannot make a decent return.’’

Deutsche Bank announced sweeping management changes on Sunday, less than two weeks before co-chief executive John Cryan was due to present his plans to scale back the trading empire built by his predecessor.

Tomorrow, Tidjane Thiam will probably reveal a strategy to prune Credit Suisse’s investment bank in favour of wealth management. Barclays, BNP Paribas and Standard Chartered are also trimming operations.

Europe’s global lenders are struggling to adapt to rising capital requirements, record low interest rates and shrinking opportunities for growth. Their retrenchment risks further squeezing lending to economies in the region and handing more business to US competitors, which have been quicker to raise capital levels and are benefiting from growth at home.

“Everything that’s being done should have been done years ago,” said Barrington Pitt Miller, an analyst at Janus Capital Group in Denver, Colorado. “The European muddlethrough scenario has been proven not to be a terribly good one.”

Credit Suisse and Deutsche Bank are the worst performers among 10 global investment banks over the past five years, according to data.

Senior departures at Deutsche Bank include Colin Fan, 42, the co-head of the investment banking and trading unit, who resigned effective yesterday, and Michele Faissola, 47, the head of asset and wealth management, who is to leave after a transition period.

The shake-out may ease Cryan’s efforts to reshape the bank and repair relations with regulators after a record $2.5 billion (R32.64bn) settlement with US and UK authorities for manipulating interestrate benchmarks. Cryan, 54, replaced Anshu Jain in July after surging litigation costs and tougher regulatory demands squeezed profitability and eroded investors’ trust.

“We want to create a better controlled, lower cost, and more focused bank that delivers long-term value to shareholders,” Cryan said on Sunday.

Thiam, who took over from Brady Dougan as the chief executive of Credit Suisse at midyear, might tap investors for as much as 8 billion Swiss francs (R109.43bn) to meet tougher capital requirements, people familiar with the plans said.

The former chief executive of Prudential said in July that Credit Suisse would focus on businesses, such as wealth management, that operated “comfortably” above their cost of capital.

The Zurich-based firm has Switzerland’s second-largest private bank, giving it an attractive alternative to investment banking, something that Deutsche Bank lacks. – Bloomberg