Deleveraging in the European Financial Sector
Portfolio Lead Advisory Services
At Deloitte, we believe that European banks are facing a plethora of challenges including the regulatory changes that are impacting capital requirements, management’s desire to improve profits and the return on equity, and the need to respond to stakeholder commitments.
The report found that in addition to the slowing economy and Euro zone crisis, barriers to deleveraging and asset divestment include the pricing gap between a buyer and seller of loan portfolios and resource constraints within certain institutions. The complexity of designing a portfolio that can be traded, recognising the breadth and depth of a bank’s balance sheet also presents a significant barrier to progression.
The European Banking Authority’s (“EBA”) announcement on 26th October requires banks to present their deleveraging plans to regulators by 25 December 2011. Such plans will be eagerly anticipated by market participants and observers. Having taken the EBA requirement into consideration, the report concluded that deleveraging is a key objective of any banks’ strategic plan and is likely to lead to increased divestment in 2012, especially across the four key markets. A further update from the EBA is scheduled for 18.00 CET on 8 December 2011.