European Bank Executives Defend Size Against EU Excess

The chief executive officers of three of Europe’s largest banks defended themselves against criticism they’re companies are too big, saying the region needs lenders with scale to support clients around the world.

At a conference in Frankfurt today, Frederic Oudea, who heads Societe Generale SA, cited the need for lenders to be able to fund billion-dollar deals, while Deutsche Bank AG co-CEO Anshu Jain said clients want banks that can provide an array of financial services. Federico Ghizzoni, CEO of Italy’s UniCredit SpA, said growth of companies outside their domestic market will require banks able to make investments in their infrastructure.

Global leaders have ordered banks to raise capital to avoid a repeat of the taxpayer-funded rescues that followed the 2008 collapse of Lehman Brothers Holdings Inc. While the CEOs voiced support for the rules designed to bolster the financial health of their firms, they warned European regulators against overreach that could put them at a disadvantage to competitors in the U.S. and elsewhere.

“Size matters, there’s no discussion,” said Ghizzoni, who leads Italy’s largest bank. “More capital, less leverage, more stringent liquidity ratio and so forth plus competition means we’re under pressure on revenues. At the same time as we have discussed so far, there is a huge need for investment.”

‘Cheap Money’

In Europe, “only” 13 lenders operate in more than 10 countries, according to Ghizzoni. There are “a few banks that will be big by nature in order to compete with the large universal banks in the U.S.,” said Oudea, who heads France’s second-largest bank based in Paris.

Some speakers at the conference organized by Euroforum and Handelsblatt newspaper signaled concerns.

“There’s been an acknowledgment that the significant causes of the financial crisis were down to too much cheap money, wrong calculation of risks, excessive leverage and large banks taking too much risk,” said Georg Fahrenschon, president of the DSGV association of German savings banks. Small lenders can’t be “liable for large ones, potentially even guaranteeing the existence of systemically relevant institutions.”

Jain, who runs Deutsche Bank with Juergen Fitschen, said that while “big means complex” and “complex means expensive,” Germany still needs a lender able to support companies seeking to tap global economic growth.

“There is a minimum scale expectation in terms of efficiency of platform and the breadth required to give your clients what they need,” he said. “On its own, no one wants to be big.”

(Corrects story published yesterday to say 13 lenders in fifth paragraph.)
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