BlackRock Inc.’s Laurence D. Fink said policy makers should plan a global bank resolution system that would respond to deteriorations in capital sooner.
“We spend too much time worrying about bank capital,” Fink, chairman and chief executive officer of the world’s largest asset manager, said today at an International Monetary Fund event in Tokyo. “As an investor of bank stocks, and we’re the largest investor in banks in the world, if we had a stronger process in which banks’ capital was restored over a very short period of time, I actually think banks would trade at a higher PE.”
The price-to-earnings ratio for the MSCI World Financials Index is 16.1 times, down from about 23 times at the end of 2009, according to data compiled by Bloomberg. The sub-index has been the best performer among the benchmark’s 10 industry groups this year, rising 18 percent.
European Union leaders in June embarked on plans to build a common supervisor as a step toward offering direct bank bailouts from the euro-area’s firewall fund. All 27 EU nations must approve the oversight proposal for it to move forward, and non-euro area nations have said they need more assurance their voices won’t be drowned out.
More time should be spent on resolving an even small deterioration in capital, Fink said.
“Resolution globally should be stronger, much more transparent and granular,” he said. “If we had a strong resolute process, that if in every country there is this resolution process of any sporadic reduction in capital, we would have a much stronger sovereign risk situation.”
Fink, who co-founded New York-based BlackRock in 1988 and built it into a $3.56 trillion manager, has been urging investors to get out of cash and low-yielding bonds. The European Central Bank’s plan to purchase government bonds in Outright Monetary Transactions has been a positive and the policy will “stabilize” tensions in the region, Fink said.
On the euro-zone crisis, Fink said it will take seven to nine years of countries navigating competitiveness and growth.
The euro region needs a weaker euro and to accept higher inflation, he added.
“We need a weaker euro and we’re going to have to accept in the eurozone maybe 3 percent inflation, maybe 4 percent inflation” to make this work, Fink said. “A lower euro is going to be important.”
Investor concerns have accelerated debt crises since the collapse of Lehman Brothers Holdings Inc. as financial markets overrun government efforts to boost bank and sovereign finances, he said.
Cash in System
“Fear of a problem is now an accelerant,” Fink said. “How we navigate problems today is so very different than how we navigated problems prior to Lehman Brothers and I don’t believe politicians fully understand this accelerant component of the market.”
Investor expectations that policy makers will get it right could also become a boost to their efforts, he said.
“There’s so much cash in the system in which investors need to put money to work, that could transform itself into a very positive accelerant,” Fink said.
The strength of a nation’s banks is central to a nation’s sovereign risk, Fink said in the panel discussion today.
“To have strong, sound public finance depends on a strong, sound banking system,” he said. “We have to resolve now these crises together with the banks and the sovereign risk, they are so interconnected. I think Europe has been much slower than the U.S.”
Fink said in a CNBC interview on Oct. 4 he’d be speechless if asked to become Treasury Secretary, without answering whether he’d say yes or no. David Rubenstein, co-founder of the buyout firm Carlyle Group LP, said in an interview last month that Fink; Erskine Bowles, co-chairman of U.S. President Barack Obama’s budget-deficit commission; and White House chief of staff Jack Lew would be credible candidates for the post.