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Are Eurozone banks ready for the alliance?

There was a publish or a guide to cover the methods which can be taken to handle the consolidation of the banking sector especially in the Eurozone from a supervising point of view released, recently on July 1st of 2020. This was done to motivate Mergers and Acquisitions activity in the entire region. The release gave a strong affirmation that most of the European bank could handle the pandemic’s impact well but the long term systemic problems still persisted.  In the last few years, Europe’s banking industry had changed drastically into something different than what it was in the year 2008’s global financial crisis (GFC). After the GFC, there was a strict implementations to strengthen their balance sheets significantly from the regulators more particularly regarding the liquidity, quality and the amount of the capital and funding choices made. And in the recent times, the banks have not been able to meet their capital costs increasingly, which resulted in raising alarm over the sustainability. There is also a strong competition from the financial technological institutions (Fintechs) and the overcapacity has flooded the banking sector’s profitability causing ultra-low interest rates due to the Covid-19 pandemic’s economic fallback which only made the situations worst recently. European Union reported that only 0.03 per cent of their assets were returned and with more than half of the Eurozone banks registered a return on assets of 0.1 per cent or lesser than that. Citigroup’s market strategies recently warned that the condition will go only worst moving forward and that the return on the tangible equity (ROTE) for banks in the EU will reach only seven next year.

Anthony Kruizinga, banking and capital markets specialist at PricewaterhouseCoopers (PwC), stated in October that he hopes the ECB guide will pave more way for an accelerated process towards a long awaited European banking alliance. He believes that it is necessary in order to create a much stronger and a more sustainable bank which will be able to compete with the biggies of US and Asian banks for the battle of the continental European market. Banks also need to accomplish economies of scale and have tolerable tools to address other new challenges, such as the digitalization of the banking sector.  Citigroup has also specified that the alliance could be a way for European banks to recover from their profitability and be better situated against the possible challenges from COVID-19.

The merging initiative has already began, with Europe having qualified as a marked uptick in important M&A deals during 2020. According to Bloomberg, the region’s banking industry’s M&A volumes were active upto 27 per cent year-on-year to $37 billion between the start of July and mid-December. Spain’s banking sector has been among the most active, with CaixaBank SA announcing its €4.3-billion acquirement of Bankia SA in September to generate the country’s biggest lender with more than €650 billion in assets and a total market capitalization of more than €170 billion, as well as Banco Bilbao Vizcaya Argentaria SA peddling its US assets to PNC Financial Services Group for $11.6 billion.

Giorgio Cocini, co-head of the financial institutions group for Europe, the Middle East and Africa at Bank of America, told Bloomberg in December, that before 2022 they are expecting 4 to 6 large deals in the space, to add to that hopefully there will be soon a Pan-European one. Merging is also supported by the politicians and regulatory establishments that recurrently support the need for healthy European banking leaders to emerge to boost the Eurozone economy. As per all the reports, across Europe over the next three years, with the consulting firm are also expecting around 70 percent of all account openings, deposits, and consumer loan applications to take place digitally during this period.

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Banking

Goldman banker hired by the Citi bank

Citigroup has hired Luisa Leyenaar-Huntingford from Goldman Sachs. This new hire is to co-head its global infrastructure franchise. Because, it seeks to win more business from cash-rich investment firms focusing on infrastructure deals. Leyenaar-Huntingford will be based in London. Responsibility will be shared with Todd Guenther in New York.

The pair will work closely with industry teams covering healthcare, industrials, natural resources and clean energy transition (NRCET), technology and communications. Leyenaar-Huntingford helped in the establishment of the Goldman’s infrastructure franchise in her time at the Wall Street bank. They will team up with Citi’s Iberia co-head of banking, capital markets and advisory (BCMA) Jorge Ramos will continue to be a senior member of the global infrastructure franchise.

The infrastructure sector is poised for further growth, according to the memo. The memo was released by Citi’s global co-heads of the alternative assets group Anthony Diamandakis and John Eydenberg, and its EMEA head of BCMA Nacho Gutierrez-Orrantia. There was significant private investment demand across the globe to deal with environmental, energy, transportation, waste, communication, digital and other social needs.

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Banking

Banks make slow progress on UK gender pay

Major banks in Britain made a slight dent in their gender pay gaps. Several insurers went backwards. Companies in Britain with more than 250 employees have been required to publish the difference between the pay and bonuses of their male and female employees. They got a reprieve due to the pandemic, last year. The financial services sector has shown one of the largest genders pay gaps in Britain. The lack of women in senior jobs is the main reason.

Pay gap data from 21 major financial institutions showed a narrowing in their average mean gender pay gap. This is just 0.4 percentage points. Banks alone had a pay gap which narrowed by one percentage point. Ann Francke, chief executive of the Chartered Management Institute said that the UK’s financial services industry has often been singled out. It really does have to get its house in order. Goldman Sachs had the widest gender pay gap in the year to April 2020. Goldman posted a gender pay gap of 51.8%. The bank told the staffs that narrowing the gap further was a critical priority. A spokesperson for banking lobby group UK Finance said, that there is clearly more still to be done.

FTSE 100 insurers Prudential, Legal & General and M&G reported a widening in their pay gaps. Prudential’s UK gender pay gap widened to 45.2%. M&G also reported a widening in its pay gap in the most recent year to 30.5%. The M&G spokesperson said that they are determined to narrow their gender pay gap and will do this by achieving better representation of women in all roles at all levels of our organization. Legal & General’s mean gender pay gap widened to 30.8%.

The insurer said that the legal & general is tackling the underlying causes of its pay gap. This is by creating a more diverse workforce and a more inclusive culture through sustained, long-term action. Admiral had a gender pay gap last year of 12.8%. The 21 firms surveyed were Barclays, HSBC, Lloyds, NatWest, Standard Chartered, Bank of America Merrill Lynch, Goldman Sachs International, JPMorgan, Morgan Stanley, UBS, Credit Suisse, Deutsche Bank, PGMS (a Phoenix unit), abrdn, Schroder Investment Management, St James’s Place, Legal & General, Prudential, Admiral Group, Aviva and M&G.

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Banking

BOJ to lower inflation target-Japan’s finance minister

Japan’s outgoing finance minister, Taro Aso, said that he had proposed lowering the central bank’s 2% inflation target. This is when the prices took a hit from plunging oil prices. He was the finance minister for nearly nine years. The slump in oil price was among the main reasons the government could not officially declare an end to deflation. In his final news conference as finance minister, Aso said that he proposed to Governor Kuroda that, with oil prices falling this much, it would be hard to achieve 2% inflation. Hence, the target must be lowered at some point. He stated this by referring to Bank of Japan (BOJ) chief Haruhiko Kuroda.

Aso also said that the governor said he would do his best to achieve the target. This is stated by adding that policymakers must scrutinise at some point, why the BOJ’s inflation target of 2% has not been met. The remarks highlight how the government and lawmakers distanced themselves from the BOJ’s target years ago, despite central bank reassurances that achieving the target was possible by maintaining or increasing stimulus.

Aso was deeply involved in negotiations with the BOJ. After Kuroda took over as governor, he deployed a massive asset-buying program. This is for pulling Japan out of deflation. Aso supported the BOJ’s stimulus efforts. He is a member of the cabinet. And also, had raised many doubts that monetary policy alone can reflate the economy out of the doldrums. New Prime Minister Fumio Kishida is set to form a cabinet.

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