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Crisis alters landscape in European corporate and investment banking, says Greenwich report

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A relatively small handful of banks including JPMorgan, HSBC and BNP Paribas have the opportunity to significantly expand their reach among companies and institutions in Europe as financia

A relatively small handful of banks including JPMorgan, HSBC and BNP Paribas have the opportunity to significantly expand their reach among companies and institutions in Europe as financial markets seek to regain their footing, according to a new report from Greenwich Associate.

To assess how the ongoing crisis and unprecedented government intervention are affecting the landscape of Europe’s corporate and investment banking industries, Greenwich Associates surveyed 321 large European companies and institutional investors for a Market Pulse survey in which participants were asked about the performance and future prospects of the banks, broker-dealers and investment banks they use.

Half of the participants cited JPMorgan as having the greatest potential to expand and almost 30 per cent mentioned HSBC, followed by 27 per cent who singled out BNP Paribas. Other banks that participants believe could benefit include Deutsche Bank (22 per cent) and Bank of America (20 per cent).

‘To a large extent, these findings can be interpreted as broad measures of how the brands of individual banks have fared in their core corporate and institutional client bases over the course of the crisis,’ says Greenwich Associates consultant Steve Busby.

‘The banks getting the highest number of citations for expected growth are those that have had smaller write-offs, stronger balance sheets and less severe capital constraints. In general, they are also the banks that have emerged as acquirers or potential acquirers in the recent bout of crisis-induced consolidation.’

However, it remains uncertain whether market gains will prove sustainable or transitory. ‘Many of the respondents predicting that firms like JPMorgan will gain market position are institutional investors who see these banks as better positioned from a capitalisation perspective to resume their business in fixed-income and equity capital markets,’ says consultant Andrew Awad.

In an environment in which clients’ biggest problem is often a lack of liquidity, winning market share in capital markets trading will not be difficult for firms healthy enough and willing to pick it up.

But corporate banking relationships turn over at much slower rates, and when they do, companies tend to shift credit and other business among the 10 or so pan-European, regional and foreign banks with whom they typically have existing ties, as opposed to seeking out new partners.

‘While JPMorgan was cited by the highest number of survey respondents as being best positioned for growth in Europe, the lower percentages citing large banks like HSBC, BNP Paribas and Deutsche Bank could reflect opportunities for well-capitalised European banks to exploit dislocations in credit markets to expand their footprints as corporate banks,’ says consultant John Colon.

Corporates and institutional investors across Europe are broadly optimistic that the action by national governments will be effective in stabilising markets, and they see significant opportunities for financial institutions that emerge from the current crisis with their balance sheets largely intact.

Sixty-eight per cent of participants believe that government capital injections into banks short of full nationalisation will be effective in stabilising markets, with only 6 per cent doubting that this will restore stability. Almost two-thirds see expanded deposit guarantees as playing a key role in restoring stability, and only 7 per cent think these will prove ineffective.

‘On the whole, European companies and institutional investors think governments have taken the right steps to bring order and liquidity back to global markets,’ says Greenwich consultant Markus Ohlig.

‘The only actions viewed as less effective by a significant share of survey respondents are reductions in interest rates and the nationalisation of financial institutions, both of which are regarded as ineffective by about a quarter of our respondents.’

Greenwich Associates also asked institutional investors to assess the economic prospects of individual countries in light of the action taken by their respective governments to address the financial crisis. Forty-four per cent of institutions believe Germany will be the first economy in western Europe to recover from the crisis, followed by Switzerland, the UK, Norway and France.

By a wide margin, institutions expect Iceland and Spain to lag the rest of Europe in terms of recovery. Other economies expected to be slow to rebound are those of Italy, Ireland and the UK.

‘Two factors come into play in these assessments,’ says consultant Robert Statius-Muller. ‘First, there is the relative severity of the crisis in individual countries. Did the country have a bubble in housing prices, like Spain? Does consumer debt play a driving role in the economy, or a minimal role, as in Germany?

‘Next is the question of how well or how poorly governments have responded. In this respect, the two extremes seem to consist of Iceland on the one hand and Germany and France on the other, whereas the situation in the UK is unclear.’

Greenwich Associates is an international research-based consulting firm in institutional financial services, specialising in providing benchmark information on best practices and market intelligence on overall trends. Based in Stamford, Connecticut, with offices in London, Toronto, Tokyo and Singapore, the firm offers more than 100 research-based consulting programmes to more than 250 global financial services clients.

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