Financial Regulatory Forum

EU “cookie-cutter” bank overhaul policy under fire

By Reuters Staff
November 3, 2009

European Commissioner in charge of Competition Neelie Kroes delivers a speech at a conference on State Aid Private Enforcement in Brussels October 19, 2009. REUTERS/Sebastien Pirlet    By Edward Taylor and Kirstin Ridley
FRANKFURT/LONDON, Nov 3 (Reuters) – Neelie Kroes’s campaign to shrink banks and launch vast asset sales has angered bankers, who accuse the firebrand European competition commissioner of kicking the industry when it’s down.Investment bankers close to some of the bailed-out lenders blame Kroes for undermining attempts to rebuild the once-lucrative industry by forcing massive, near-simultaneous asset sales, while banning acquisitions.

“We do feel bruised by what we’ve had to go through,” said Stephen Hester, chief executive of Britain’s Royal Bank of Scotland Group Plc, which on Tuesday announced a string of asset sales in return for state aid.

Hester was referring to last-minute sanctions slapped on by Brussels as RBS enters a UK scheme to insure hundreds of billions of pounds of toxic assets, with one analyst saying the bank had been “thrown to the wolves”.

Deutsche Bank AG head Josef Ackermann said this week that a “refragmentation of financial markets is in nobody’s interest”, and said cutting big banks down to size would not solve problems raised by the financial crisis.

Brussels rejects such criticism, saying it will stagger asset sales if necessary, insisting it will be flexible to avoid a “tsunami of disposals” and saying it will look at whether assets are attractive to potential buyers.

It says it has neither the tools nor the remit to come up with a vision for the European banking market.

Irmfried Schwimann, director at the European Commission’s directorate general for competition, told Reuters last month: “I think it would be very arrogant to devise what the financial services industry should look like.”
FEEL THE PAIN
But bankers on the receiving end are feeling the pain, saying the Brussels measures create too many sellers, making it difficult for weak banks to sell at a decent price and potentially causing another crisis down the road.

“Kroes wants structural change at any cost and her only tool seems to be to force banks to shrink. The sale of assets is impacted negatively because of this,” a banker familiar with the restructuring of a German bank said.

Another investment banker said Kroes was “applying a cookie-cutter approach to each bank without thinking of the cumulative impact”.

Still, bankers and lawyers representing potential acquirers say there is no shortage of bidders lining up to snatch the spoils of the trillions of euros spent on state aid.

“Quite a few of these assets will end being sold pretty sharpish — particularly the Northern Rock ones,” said James Perry, a partner at law firm Ashurst in London, referring to the nationalised British bank that is to be split in two.

But a different picture emerges in the German banking sector, one of the worst hit in the financial crisis.

German bankers gripe that while slashing balance sheets by 40 to 50 percent works well in isolation, Kroes seems to have overlooked the cumulative impact of the Commission’s actions.

Rather than creating a revamped banking landscape, the chances of a successful auction have been undermined with the emergence of too many sellers, these people say.

Many of the assets on the block are not healthy enough to survive on their own, bankers say, potentially requiring another rescue down the line if the sales are pushed through.

(Additional reporting by Foo Yun Chee in Brussels; Editing by David Holmes) ((For a summary of related stories, please double click on [ID@nL2712917])) ((edward.taylor@thomsonreuters.com; +49 69 7565 1187; Reuters Messaging: edward.taylor.reuters.com@reuters.net))

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