Not many people suffering financial hardship as a result of the global downturn will mourn the passing of the banks – but some bankers are predicting the number of global banks is shrinking.
Only be five or six banks are strong enough to keep their positions as global banks, is the pessimistic outlook was made by Deutsche Bank co-chairman, Anshu Jain.
He told the Dubai International Finance Centre forum that the past five years had seen a ‘gut-wrenching’ change in the financial services sector.
This followed an increasing number of regulations and because of banks being forced to increase their capital and liquidity was leading to the ‘unintended consequence’ of major banks consolidating.
He told the forum: “Many banks are now looking to step off the world stage and there will be no more than five or six multi-location global banks left standing.
“And who they are, no-one knows.”
Scaling back services
In recent months, many of the world’s big banks have been cutting their services.
Indeed, the sector has seen Swiss bank UBS lay off 10,000 employees around the world when closing fixed income businesses.
Other banks, including Barclays, Societe Generale, Credit Suisse and Deutsche Bank have all scaled back their global operations.
The move to consolidate was underlined by HSBC’s recent announcement that it wanted to sell its $9.3 billion stake in China’s Ping An Insurance firm.
But Europe’s biggest bank made clear it was intent on shedding non-core operations to boost its profitability.
Though the sale was widely expected as part of the bank’s three-year recovery plan, the news immediately led to a drop in Ping An’s share price.
Not all banks are downsizing
The sale is fraught with issues. A buyer for the stake would need government approval and they have traditionally only allowed Chinese financial groups to buy equity in the country’s banks and insurers.
Also, the size of the potential deal makes it difficult to find a single buyer.
The move by global banks is not being mirrored in the Middle East where banks are not currently looking at consolidation.
Abdul Aziz Al Ghurair, the CEO of Mashreq Group and chairman of the DIFC Authority board, says he doesn’t ‘feel the pulse of banks getting consolidated here’.
He added: “Banks in the Middle East are still profitable and there is no pressure to start consolidating.”
His views were echoed by the chief economist, Middle East at Citi, Farouk Soussa, who says regional lenders are seeing the cost of funding as manageable and that profitability is good which means there’s no desire to consolidate.
He added: “There is definitely space for consolidation but whether or not that actually happens in the region will be down to a what their objectives are and a for a policy decisions.”