'The global banking industry is in the midst of a once in a lifetime restructuring, with new rules and new markets'.

Author:Caplen, Brian
Position:Opinion - Industry overview

The current state of the world's banks very much reflects their geography. In Europe, the environment remains dire, with banks struggling to meet European Authority Banking capital requirements. The funding situation has improved, but only thanks to the huge injection of liquidity from the European Central Bank's long-term refinancing operations (LTRO).

In the US, by contrast, where there are signs of economic recovery, the banks are also showing some improvement. In Asia and Latin America, local players are taking advantage of the weaker position of the international banks by becoming the lead advisers and underwriters on the biggest deals, rather than playing the secondary role they once used to. With strong balance sheets, banks such as Brazilian leader kali Unibanco have strengthened their regional presence through cross-border acquisitions and organic growth.

The same is true of Chinese banks, although there are concerns about the rapid expansion of their balance sheets and their exposure to China's overheated property market. Yet because of their massive deposit bases only a few pessimists think that there is a significant danger of a banking crash.

But the real worry is European banks, and their difficulties are having knock-on effects as they retreat from overseas markets to focus on their domestic situation. This is impacting on wholesale markets where they were once dominant, such as shipping and project finance, and amounts to a reversal of the globalisation push that took place before the crisis. With regulators concerned about being on the hook for banks' cross-border operations, and politicians stressing the need for financing for domestic companies, the pressure is on them to focus more on their home market. This may involve them selling overseas assets.

Even banks that came through the crisis relatively unscathed--such as the UK's HSBC and Spain's Santander--are looking at their operations to see how best to reconstruct themselves for leaner times ahead.

HSBC, for example, is selling off operations where it doesn't have sufficient scale, such as in Central America and Chile. Santander has sold out in Colombia, where it only had a 2.7 per cent market share, and reduced its ownership in its listed Brazilian and Chilean banks, using the proceeds to shore up capital in Spain. The buyers of these banks have been Latin American--HSBC's Central American...

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