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Tuesday, 23 September 2014

National Champions of the European Capital Markets 2009

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How different the world looks in just 12 months. The National Champions of the European Capital Markets 2008 report was published just days before the collapse of Lehman Brothers – the event that became the defining moment of the financial crisis that had started with the credit crunch one year earlier. It is hard to identify an event more seismic for banking – in Europe and globally.

Lehman’s collapse changed everything in banking, bringing the world closer to complete financial disintegration than anything else for generations. Just before it occurred, banks were of course concerned about their exposures to sub-prime mortgages, toxic securities and occasionally fraud. And at the time, the world seemed a frightening place – the credit crunch a fearsome adversary. But Europe’s banks were still able profess optimism, without fear of looking ridiculous.

Just one week later, few would have made such claims in public. Lehman’s demise saw the collapse of financial stocks without prejudice or exception, to the extent that many countries quickly banned the short-selling of them.

Even against that backdrop, there were those who lost more than others: RBS was hit so hard by the loss of confidence that it was eventually partially nationalised, alongside Lloyds, Fortis and others. Several banks required smaller investments from their governments to boost their capital adequacy ratios. The definition of success was transformed: banks that once competed to outdo each other with multi-billion dollar earnings found themselves reduced to bragging about how little they were losing.

The reputation of banks and the bankers who worked for them plumbed the depths, and hardly recovered much. In Europe, bank remuneration, financial regulation and moral hazard all became issues of general public interest. The relationship between finance and politics has been turned on its head and remains in flux. No one knows what the new status quo will be.

And yet now, one year on, banks are back to feeling optimistic, despite having spent much of the intervening year standing on the brink of an abyss from which they were only pulled back by co-ordinated government intervention. The fear of outright collapse seems to have abated, as most banks have managed to stem their losses, or at least slow them to a less frightening rate. Banks are again talking about growth. Banking has become one of the better performing sectors in European business.

The co-ordinated approach to the rescue ensured that the fate of a bank was not dictated by its jurisdiction. There have been winners and losers everywhere. In Switzerland, Credit Suisse has emerged with its reputation enhanced. In the UK, Barclays achieved the same, while in Germany it was Deutsche Bank. The biggest two French banks acquitted themselves well, while in the Netherlands, ING is on course to replace the former ABN AMRO as the country’s top player.

The banks that were in the worst shape look markedly improved, yet the spectre of government interference still looms large. Most jurisdictions have suffered at least one basket case, leaving governments across the continent with a lot of thinking to do regarding exit strategies.

The banks that rode the storm most skilfully have earned significant prestige, yet even they are not immune from the fear of what could be around the corner. For the entire sector, it has been a humbling 12 months, but there are grounds for hoping that the worst is over.

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