Outgoing Chief of France’s Société Générale US He dismissed the risk of the banking crisis spreading to Europe, arguing that tighter regulation of the sector was the “fundamental reverse” that helped protect the sector.
Frederic Odey, who is stepping down this month after 15 years at the bank’s helm, said he was “confident that the European banking sector will continue to be extremely strong in the coming quarters”.
The US In, he added: “I think the unrest may continue.”
“You have many small and medium-sized banks [in the US] Which is not as regulated as in the eurozone and Europe, where you have a framework that takes into account all these crisis simulations that have achieved stability,” Ode said after SocGen posted higher profits in the first quarter.
The eurozone’s banking system has remained basically the same since the 2008 financial crisis, when former president Donald Trump rolled back some stress tests and requirements for smaller US banks with up to $250bn in assets.
Such institutions no longer have to factor in their capital requirements, particularly some unrealized losses on assets in their bond portfolios.
The US has suffered several bank failures in recent weeks, but Credit Suisse and Silicon Valley Bank’s much smaller UK business are the only European lenders to come close to collapse.
Second-tier European banks have also not suffered the same level of customer withdrawals as US regional lenders, mainly because their deposit bases are less concentrated.
“You’ve seen some US banks drop as much as 10 percent in a week. . . Look at how extraordinarily sticky deposits have been in all the big eurozone banks,” Odey added. “There is a fundamental contradiction here.”
Failed US lenders such as SVB and Signature Bank had high-profile clients in the tech sector, many of whom withdrew their deposits at the same time. Regulators have highlighted the interconnected nature of such customers and the role of social media in spreading rumors about banks’ problems.
The US banking market also has a high level of competition for deposits from other savings products such as money market funds. Inflows of more than $340bn into US money market funds in March – the highest rate since the start of the Covid-19 pandemic three years ago – most of which came from regional banks.
In contrast, European banks have maintained high levels of liquidity, highlighted by the absorption of Credit Suisse by UBS and SVB UK by HSBC, and other lenders, such as UniCredit, increasing shareholder returns.
“European banks are underperforming a combination of large unrealized losses on securities portfolios and highly confidence-sensitive funding models,” S&P analyst Giles Edwards said in a recent report. He added that the Credit Suisse takeover by UBS was a unique case because of certain “business and risk management deficiencies”.
Some European banks suffered early when tech-focused SVB collapsed in mid-March, sending investors flying despite direct exposure to the California-based bank. Since then, there has been little sign of a decline in retail deposits across Europe.
Credit Suisse faced heavy outflows in March, days after it was bailed out by rival UBS, mainly in its wealth management arm.
Banks in Europe have less exposure to distressed commercial real estate than their US peers, representing about 8 percent of the loan book at European lenders, compared to 18 percent at US banks and 36 percent for mid-cap US lenders. to Jefferies.
Oudéa said commercial real estate was a “potentially risky sector” in the US, but SocGen said on Friday that its exposure to the sector was 3.2 percent of its total, with the bulk skewed towards Europe.
This month, SocGen’s investment bank chief Slovomir Krupa is set to replace Oudea, who took over as chief executive in 2008 after a rogue trading scandal, if shareholders approve the appointment.
Part of Krupa’s mandate will be to try to revive a share price that has never recovered since the financial crisis, despite restructuring. SocGen’s share price fell 26 percent in March and has only partially recovered since, rising 13 percent.
Rising interest rates have created some problems for European banks, although broadly speaking they should increase margins. In France, for instance, limits on mortgage pricing are reducing benefits for lenders and making it difficult to offer home loans.
SocGen on Friday reported a slight increase in deposits compared to the first quarter of last year. It says mortgage originations in France are down from a year ago. Net income rose 5.7 per cent to €868mn in the first three months of the year, ahead of forecasts.
“French retail revenues continue to show pressure in the short term,” Barclays analyst Amit Goyal said of the results, though added that the bank’s performance in investment banking remained solid.
Strong bond trading revenue and lower charges on non-performing loans during the quarter helped Socgen offset sliding revenue at its French retail bank – an area it said was likely to underperform throughout 2023.