European bank deleveraging
Capital gain, asset loss
Deloitte has undertaken a survey of 18 financial institutions across eight European countries to gather their views on the drivers, pace, volume, location and impact of bank deleveraging. This report summarises the feedback we received in ten main points.
Europe’s banks have been reducing their balance sheets in the wake of the financial crisis. Increasing capital requirements, funding pressures, concerns over banks’ resolvability, culture change and strategic shifts are all contributing to the need to re-size and re-shape.
The feedback of the surveyed banks revealed the following:
- Higher capital requirements are the key driver of bank deleveraging
- Liquidity constraints are also a significant cause of deleveraging
- Deleveraging is expected to yield a neutral/positive impact on capital ratios
- Banks expect deleveraging to be modest relative to past crises and to the credit boom
- Banks expect to re-size through run-offs more than through divestments
- A slow burn: Over two-thirds of respondents expect European deleveraging to take at least five further years to complete.
- High proportion of divestitures expected to be assets in Western Europe
- Banks’ models are changing
- Pricing disconnect between banks and potential buyers
- Private equity firms and non-European banks seen as the likeliest buyers