Changing regulation, consolidation and European populism were talking points for over 800 investors, bank executives, regulators and policymakers who attended the 22nd Annual European Financials Conference, Goldman Sachs’ longest-running event in Europe, last week in Frankfurt. Goldman Sachs Research’s Jernej Omahen discusses the outlook for consolidation amid an increase in political uncertainty.
Jernej, from your perspective covering European financial services for Goldman Sachs Research, what were the biggest topics among attendees?
Jernej Omahen: In the banking sector, attendees were most focused on two themes — completion of the European Bank Union, and further scope for consolidation.
On the theme of European integration, specifically the ability for Europe to complete the two key projects — a capital markets union, and the European banking union — the overall message from policymakers was that completion of both is on the agenda, but the timing is still distant.
M&A was also debated, with banks, investors and policymakers in agreement that the market needs to rationalize further. This said, whilst there is appetite to discuss consolidation within a single national banking market, the bank executives were skeptical that cross border consolidation can take place in the immediate term.
How has the macroeconomic backdrop changed for financial institutions?
JO: Last year, we hosted our conference at a time when Banco Popular, a large Spanish bank, was facing deep distress, and was sold for €1 to Santander on the opening day of our conference. This time around, the “crisis and distress” discussion gave way to more established topics — ability of banks to pay higher dividends, to cut costs, compete with fin-tech companies, and areas of growth. This said, political risk remains elevated and has scope to cloud what is otherwise a better outlook.
What other takeaways stood out from the event?
JO: They fall into three categories. First, the operating environment remains tough. Rates are negative in Europe, which pressures margins; loan growth remains subdued, and there is upside pressure on costs, primarily due to high need for IT spend. Second, there is a recognition — amongst bank executives, investors and regulators — that the sector would benefit from a more rational market structure. Third, the key project for Eurozone banks — the completion of the bank union — is still only a long-term prospect.
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