A new trend seems to be alluring banks, especially the ones failing or suspected of failing: mergers. Now why would two failing banks want to merge? To get bigger, of course, and then become “too big to fail”! To insure more support from the State, or States, if the newly-formed group is transnational, and to get unconditional aid from the European Central Bank. At that point, one is in a direct systemic crisis, but with such support of unfathomably deep pockets the spectre of bankruptcy fades away.
There are notably rumours about Commerzbank merging with Deutsche Bank or with the French bank BNP Paribas and, also, about the Italian bank UniCredit and Société Générale, the French bank. Both German banks are under pressure and their stock prices are sinking. Merging would actually prove that they can’t escape their fate and they would de facto be protected by the State... on the way to become nationalised. A merger between BNP Paribas and Commerzbank would be more political than anything else. One can already hear the governments and the media hyping the “Banks Airbus”, which would be grotesque. And as far as an eventual merger between UniCredit and Société Générale happening, it would be the joke of the decade, since the current CEO of the Italian bank, Jean-Pierre Mustier, was Jérôme Kerviel’s immediate superior when he almost put Société Générale under... he hadn’t been able to notice the extravagant positions of one of his traders, and now he would wish to be at the top again!
What is worse than the rumours is what seems to be an official encouragement from one of the highest-ranking banking authorities in Europe, namely Danièle Nouy, the president of the European Banks Supervision Committee. On November 7, 2017, she stated: “We definitely need more... cross-border consolidations, in particular. I would like to see mergers within 12 months. I’m an optimistic person.”
No, Madam president, what we need is banks that are healthier, with more equity, more prudent in risk management and more truthful about their balance sheets. These mergers do not create value. As an American adage goes, “Two turkeys do not an eagle make.” Having European mammoths would only increase systemic risk and reinforce crony capitalism... it would be akin to State ownership.
And the savers would have every reason to be worried: they would have less choice, there would be less competition, and even though their bank wouldn’t disappear, they would still be just as much exposed to having their accounts looted to pay for some of the losses, as outlined in the BRRD directive. Above all, and this is most serious, such banking mammoths would take even more risks than today, resting assured they would be bailed ad infinitum by the States and the ECB. Banking systemic risks in Europe would increase yet, to the detriment of savers. So no, banking mergers are absolutely not the answer to the banking problems today – in fact, they would constitute a dangerous leap forward.
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Philippe Herlin Finance Researcher / Member of the Goldbroker.com Editorial Team
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.