While 2007 was difficult
year for many banking groups due to the subprime collapse, 2008
looks set to be even more painful, with possible major
consolidation in the US market on the cards. Overall, it was the
year in which emerging market shone most brightly, led by India,
Brazil, the Czech Republic and Slovenia.
This has been a tumultuous year in retail banking, framed at the
start by fears over the US housing market and then at the end by
the very realisation of those fears. The problem for the US – and
international – banking community is that the fall-out from the US
subprime is set to continue well into 2008. And while it has so far
confined itself largely to the US – and international banks that
invested in US assets – over-indebted markets such as the UK could
be the next to slide.
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In sharp contrast to the US, emerging markets had a largely bumper
year in 2007, with India, Pakistan, China, Brazil and a number of
Central and Eastern European economies high on the list of banking
over-performers (see bar chart). Local banks in these
markets, such as ICBC in China, have consequently performed well,
as have groups with strong emerging market exposure such as
Standard Chartered (Asia) and Santander (South America).
But this year was also hit by continuing problems in the world’s
second-largest economy, Japan, where sluggish domestic banking
growth was hit hard by new regulations limiting consumer lending
(see RBI 582). The ongoing problems have prevented major
Japanese banking groups from expanding their retail operations
around the world. Mitsubishi UFJ Financial has said it wants to
generate 20 percent of its gross profits from overseas by 2010, up
from the current 15 percent, a modest figure compared to
international banks such as HSBC and Citi, both of which are aiming
at 60 percent (see MUFG still chasing its potential).
In the US, the significant drop in the share prices of
many of the leading banks has started talk that the country’s
banking market could undergo major consolidation in 2008.
Washington Mutual’s share price has dropped by around 60 percent
across 2007, for instance, leaving the US’s largest thrift
vulnerable to a deal. Jamie Dimon, the chairman and CEO of JPMorgan
Chase (see RBI 583), has poured fuel on these fires,
saying that he expects the current market turmoil to unleash a wave
of bank mergers in the US and in other mature economies such as
Germany.
On 14 December, Dimon told German business daily
Boersen-Zeitung: “I believe that we will see a huge amount
of big mergers in the US and Germany… Companies recognise after
such a collapse that they need more weight, more capital and access
to good, long-term financing, and the people there say to
themselves ‘now it is time to do something.’”
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By GlobalDataIf problems in the US mortgage market continue to spread into other
areas of consumer lending such as credit cards, then banks’ need to
merge or be acquired will be even more pressing.
