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SNL FINANCIAL’S TOP 50 BANK RANKING

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Decline in banking

The widespread effect of deleveraging in Europe is far more evident in SNL Financial’s compilation of the largest 50 European banks this year than in our previous ranking.

SNL’s annual ranking reveals that Europe’s 50 largest banks by assets shrunk by more than €3 trillion in 2013. The top 15 banks by assets alone shed more than €2.3 trillion in assets, an amount roughly the size of Germany’s 2013 GDP, according to the Economist Intelligence Unit.

Our pro forma ranking — adjusted for recent and pending deals — shows that none of the banks in the sample crossed the €2 trillion mark, compared to three such banks in our previous ranking.

HSBC Holdings Plc tops the list for the second consecutive year with €1.939 trillion in assets, a 5.02% drop from the €2.041 trillion recorded in 2012. Earlier this year, the bank was also crowned the largest European bank by market capitalization in SNL’s 2013 ranking as of Jan. 22.

BNP Paribas SA climbed two notches to become the second-largest bank in Europe with €1.819 trillion in pro forma assets. Meanwhile, Crédit Agricole Group retained its position as the third-largest bank in Europe.

Deutsche Bank AG was the most aggressive bank on our list in terms of reducing the size of its balance sheet. The bank slashed its assets by €410.88 billion in 2013 and landed in fifth place in the overall ranking, with €1.611 trillion in assets, slightly behind Barclays Plc‘s €1.617 trillion of assets.

The problems faced by Deutsche Bank are manifold; the most significant are related to the costs of legacy issues including reducing legacy assets, litigation and impairments. The weak performance of its investment bank, specifically in the fixed-income, currencies and commodities business, continues to add further pressure on the bank’s profitability. Furthermore, the bank is likely to restructure its operations in the U.S., owing to the increased Federal Reserve regulatory requirements.

Nevertheless, CFO Stefan Krause seemed optimistic about the future during the bank’s fourth-quarter 2013 earnings conference call, saying: “We are forecasting that 2014 will represent the turning point where the bulk of our legacy losses, litigation, de-risking costs, which have been the three things which have contributed the most rigorously, will be behind us.”

Other large banks that reduced assets by more than €200 billion included Royal Bank of Scotland Group Plc, which cut €381.02 billion in 2013; Crédit Agricole Group (€320.75 billion); Barclays (€215.96 billion); and UBS AG (€212.66 billion).

Overall, among the banks that also appeared in the previous ranking, 40 of the 50 showed year-over-year declines in assets in 2013. Only eight showed an increase over the same period. The decline is a clear indicator that increased regulatory pressure and looming uncertainty over the upcoming ECB’s asset quality review and stress test have accelerated the quest to exit nonstrategic divisions and shed legacy or noncore assets.

A higher required leverage ratio could put significant demands on the capital of leading European banks, according to a recent analysis conducted by SNL. A call for further deleveraging could mean that the banks have to raise more capital or reduce the size of their balance sheets, or do both. All in all, this could have further spillover effects on banks’ willingness to extend credit, affecting Europe’s already weak macroeconomic environment.

As for the ECB’s stress test later in the year, there may be a few surprises, forcing banks to further review strategies and move toward leaner business models.

Recent research from PricewaterhouseCoopers estimated that European banks still have $2.4 trillion of noncore assets to sell.

The asset-shedding spree observed in 2013 is unlikely to abate anytime soon.

SNL Financial’s data is pro forma, taking into account pending deals and transactions that have closed on or before May 7, 2014, and that involve a European bank as either the buyer or seller.

Banking

Citigroup considering divestiture of some foreign consumer units – Bloomberg Law

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Citigroup considering divestiture of some foreign consumer units - Bloomberg Law 1

(Reuters) – Citigroup Inc is considering divesting some international consumer units, Bloomberg Law reported on Friday, citing people familiar with the matter.

The discussions are around divesting units across retail banking in the Asia-Pacific region, the report https://bit.ly/3pD57WP said.

“As our incoming CEO Jane Fraser said in January, we are undertaking a dispassionate and thorough review of our strategy,” a Citigroup spokesperson told Reuters.

“Many different options are being considered and we will take the right amount of time before making any decisions.”

The move, part of Fraser’s attempt to simplify the bank, can see units in South Korea, Thailand, the Philippines and Australia being divested, the Bloomberg report said.

However, no decision has been made, according to the report.

Revenue from Citi’s consumer banking business in Asia declined 15% to $1.55 billion in the fourth quarter of 2020.

The divestitures could be spaced out over time or the bank could end up keeping all of its existing units, the Bloomberg report said.

The firm is also reviewing consumer operations in Mexico, though a sale there is less likely, the report said, citing one of the people.

Last month, New York-based Citigroup beat profit estimates but issued a gloomy forecast for expenses. Finance head Mark Mason said the lender’s expenses could rise in 2021 in the range of 2% to 3%, weighing on its operating margins. (https://reut.rs/2ZwXRB1)

(Reporting by Niket Nishant in Bengaluru; Editing by Maju Samuel)

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Banking

European shares end higher on strong earnings, positive data

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European shares end higher on strong earnings, positive data 2

By Sagarika Jaisinghani and Ambar Warrick

(Reuters) – Euro zone shares rose on Friday, marking a third week of gains, as data showed factory activity in February jumped to a three-year high, while upbeat quarterly earnings boosted confidence in a broader economic recovery.

The euro zone index was up 0.9%, with strong earnings from companies such as Acciona and Hermes brewing some optimism over an eventual economic recovery.

The pan-European STOXX 600 index rose 0.5%, as regional factory activity was seen reaching a three-year high on strong demand for manufactured goods at home and overseas.

Another reading showed the euro zone’s current account surplus widened in December on a rise in trade surplus and a narrower deficit in secondary income.

Still, the STOXX 600 marked small gains for the week, having dropped for the past three sessions as investor concern grew over rising inflation and a rocky COVID-19 vaccine rollout.

But basic resources stocks outpaced their peers this week with a 7% jump, as improving industrial activity across the globe drove up commodity prices.

“This week’s slightly adverse price action has all the hallmarks of a loss of momentum temporarily and not a structural turn,” said Jeffrey Halley, senior market analyst at OANDA.

“There is not a major central bank in the world thinking about taking their foot off the monetary spigot, except perhaps China. (Markets) will remain awash in zero percent central bank money through all of 2021 (and) a lot of that will head to the equity market.”

Minutes of the European Central Bank’s January meeting, released on Thursday, showed policymakers expressed fresh concerns over the euro’s strength but appeared relaxed over the recent rise in government bond yields.

The bank’s relaxed stance was justified by the euro zone economy requiring continued monetary and fiscal support, as evidenced by a contraction in the bloc’s dominant services industry in February.

The STOXX 600 has rebounded more than 50% since crashing to multi-year lows in March 2020, with hopes of a global economic rebound this year sparking demand for sectors such as energy, mining, banks and industrial goods.

London’s FTSE 100 lagged regional bourses on Friday due to a slump in January retail sales and as the pound jumped to its highest against the dollar in nearly three years. [.L] [GBP/]

French carmaker Renault tumbled more than 4% after posting a record annual loss of 8 billion euros ($9.68 billion), while food group Danone and German insurer Allianz rose following upbeat trading forecasts.

(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Sriraj Kalluvila and Shailesh Kuber)

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Banking

ECB plans closer scrutiny of bank boards

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ECB plans closer scrutiny of bank boards 3

FRANKFURT (Reuters) – The European Central Bank plans to increase scrutiny of bank board directors and will take look more closely at diversity within management bodies, ECB supervisor Edouard Fernandez-Bollo said on Friday.

The ECB already examines the suitability of board candidates in a so-called fit and proper assessment, but rules across the 19 euro zone members vary, so the quality of these checks can be inconsistent.

The ECB plans to ask banks to undertake a suitability assessment before making appointments, and they will put greater emphasis on the candidates’ previous positions and the bank’s specific needs, Fernandez-Bollo said in a speech.

The supervisor also plans more detailed rules on how it will reassess board members once new information emerges, particularly in case of breaches related to anti-money laundering and financing of terrorism, Fernandez-Bollo added.

Fernandez-Bollo did not talk about enforcing diversity quotas, but he argued that diversity, including diversity in gender, backgrounds and experiences, improves efficiency and was thus crucial.

“Supervisors will consider furthermore all of the diversity-related aspects that are most relevant to enhancing the individual and collective leadership of boards,” he said.

“Diversity within a management body is therefore crucial … there is a lot of room for improvement in this area in European banks,” he said.

(Reporting by Balazs Koranyi, editing by Larry King)

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