Stockholm (Ekonamik) – Since the ECB’s last meeting met last month and lowered the deposit facility rate from 0.4% to 0.5%, and announced a new round of asset purchases, the decision has been reverberating across the currency area. Here we highlight three prominent views of the new economic environment in which European banks find themselves by the three CEOs of some of Europe’s largest banks.
Starting with support for Mr Draghi, and his successor, Unicredit‘s CEO, Jean Pierre Mustier, told the Financial Times that European banks needed to get over themselves and stop moaning about negative rates. Highlighting the social and economic role of banks over their financial motivations, the French CEO and president of the European Banking Federation (EBF) reminded his peers that “banks in Europe are here to finance the economy,” and chief executive of UniCredit. “We have negative rates today. So be it,” he said. “Negative rates are for the purpose of society. Not against or for the banks.”
However, the support from the head of the EBF is more a symptom of unease than an echo of internal support. Other bankers were not so kind to monetary policymakers.
The outgoing president of the ECB was put on the spot on the occasion of the central bank’s last meeting with one journalist citing Deutsche Bank’s CEO, Christian Sewing, as saying that “if the ECB is continuing this type of monetary policy it may lead or will lead to a destabilisation or a collapse of the financial system.” Still in Germany, the ECB also came under fire from Oliver Bäte, CEO of Allianz. The insurance executive warned against the politicisation of monetary policy and accused Mr Draghi of lacking independence. According to Bäte, the ECB’s intervention is having the added effect of giving too much breathing room for politicians, giving them a respite from the fiscal reforms that the currency area so needs to be completed. At the same time, he warned that the central bank has failed to disconnect the bank balance sheets from the sovereign debt risk that brought about the crisis in southern Europe.
At the start of October, Ana Botin, one of the main shareholders in Spain’s Santander, reportedly warned an audience at Milan’s Bocconi University against the disruption of negative rates and our ignorance about how the economy behaves in these conditions.
Across the border, Ralph Hamers, chief executive officer of ING Groep, also disparaged further intervention. A week ahead of the last meeting the dutch CEO told Bloomberg that further asset purchases and negative rates would not be helpful. Arguing against the effectiveness of the policy rather than its indirect effect on the financial industry, the CEO noted that “Quantitative Easing (QE) and negative interest rates have had their effect, for sure. We needed them. But I don’t think that going any further on any of them is going to help us in any case,” he admitted. According to the CEO, the problem is not the fundamentals of the economy, but rather the uncertainty surrounding Brexit and the trade war, which are problems that the negative rates cannot fix. “We don’t see any company in need of capital that is unanswered. We don’t see any saver saving less because of negative rates.”
In Portugal, Banco Comercial Português’s (BCP) CEO, Miguel Maya, warned about coming “challenging times”. In a conference call in the middle of the summer, the country’s largest bank explained that the bank was going to have to start charging institutional investors. Echoing similar issues in Finland, in the Iberian country, negative rates are actually forbidden by law. According to the Bank of Portugal (BdP), the country’s central bank “regardless of the manner in which the interest rate on a deposit is determined, it cannot under any circumstance, be negative.” However, there’s a workaround whereby the country’s largest private bank charges clients an added fee to compensate for the negative rate.
With regards to asset purchases, in a recent interview with the Financial Times, Frédéric Oudéa, CEO of French bank Société Générale, warned against the disruptions that such an intervention would introduce to the market. According to the executive, further asset purchases send the wrong message and muddle the waters, rewarding badly managed banks by giving them too much breathing space at the detriment of sectoral consolidation.