The European Union will likely abandon a plan to split trading businesses from deposit-taking activities because the current proposal would make the region’s banks uncompetitive, said Groupe BPCE Chairman Francois Perol.
Proposals by a group led by Bank of Finland Governor Erkki Liikanen would weaken European banks’ ability to manage stock and bond sales for clients at a time when lenders are cutting loans to meet higher capital requirements, said Perol, head of France’s No. 2 bank by branches. Perol is also chairman of Natixis SA, BPCE’s investment-banking and asset-management arm.
“We have to keep capital markets within our banks because this is the only way for the banks to be competitive,” Perol, 49, said in an interview in Paris yesterday.
Recounting a conversation he had with an unidentified U.S. bank chief executive officer, Perol said: “He told me, ‘I love the Liikanen report, because you Europeans will be out of business.’ This is why I’m confident it will not be done.”
The EU is seeking ways to move riskier activities away from more traditional banking to take taxpayers off the hook for bailouts and to protect depositors in the event of failure. EU regulators are examining “a number of options” as banks lobby against the Liikanen plan, according to an EU report in May. Alternatives may include the approach France is adopting, limiting the separation to proprietary activities, Perol said.
Lending is moving to capital markets, especially in Europe, as a consequence of stricter international capital and liquidity requirements, according to Perol.
“This transition is now taking place,” Perol said in an interview with Bloomberg Television. Capital-market activities need to be kept within universal banks, he said.
Deutsche Bank AG is among banks to speak out against Liikanen’s proposals to force lenders to separate their trading activities. Co-CEO Juergen Fitschen said yesterday in Berlin that preserving investment and retail banking under one roof is in the interest of corporations that want an array of services. Fitschen spoke at a conference hosted by the business wing of German Chancellor Angela Merkel’s Christian Democratic Union.
Liikanen, speaking at the same event, called for regulators to find the “right balance.”
“Banks need to be able to fund the economy, but the banking system must be safe and stable for the society,” Liikanen said.
He declined to comment to Bloomberg News on whether his proposals would be implemented.
Under the Liikanen plan, a bank’s trading arm would be legally separate from other parts of the company. High-risk activities that would be transferred to it include unsecured loans to hedge funds and private equity investments. The proposals would affect proprietary trading and market making.
French and German plans to segregate banks’ riskiest trading activities are narrower than Liikanen’s proposals.
In Germany, Merkel drew fire from banks for pushing through regulation last month that included a plan to force banks to separate out proprietary trading and some business with hedge funds starting in 2017. Peer Steinbrueck, Merkel’s first-term finance minister and her Social Democratic challenger in Sept. 22 elections, first advocated a split of banks.
French President Francois Hollande, elected last year pledging to be tough on finance, is pushing through a law to isolate banks’ riskiest activities, including proprietary trading. The plan requires banks including BNP Paribas SA and Societe Generale SA to split market activities unnecessary to finance the economy into separately capitalized units.
“I welcome the French banking reform which separates only prop trading activities,” Perol said. “The German government is currently discussing a banking reform very much like the French reform and this is very good news for the capital markets industry in Europe.”
While Perol reiterated a 12 percent target for Natixis’s return on equity, he declined to provide a profitability goal for BPCE. The bank is “still in a transition period” as it adapts to new rules and is mulling cost cuts, he said.
“Of course we pay very much attention to our costs,” Perol said, declining to give a target for cost savings. “We are working on a new strategic plan” for 2014 and 2015, he said. “Next November we will be able to tell the markets exactly what are our plans.”
U.S. and British regulators have already proposed structural changes to banks in a bid to curtail risks. U.K. Chancellor of the Exchequer George Osborne plans to force large lenders to separate their consumer and investment banking operations in an overhaul that the Treasury estimates may cost as much as 7 billion pounds ($10.8 billion) a year.
The U.K. plans were drafted by a panel led by former Bank of England Chief Economist John Vickers.