(Bloomberg) -- Fragmentation in Europe’s banking markets is leading to lower returns for shareholders and higher borrowing costs, according to UBS Group AG chief executive officer Sergio Ermotti.
Allowing capital to move freely across jurisdictions would lower costs for the economy, the executive said in an interview with Bloomberg TV on Thursday. There’s scope in the region to create economies of scale and diversification, he said.
“When you look at Europe, the market is very fragmented,” he said. “At the end of the day, the cost is paid by the economy, by clients. Of course shareholders are suffering but eventually the cost of borrowing and the easiness of accessing credit is impaired.”
Despite harmonizing banking supervision and regulation across the EU’s largest banks in the aftermath of the financial crisis, Europe has failed to create a true single banking market, partly because of different insolvency regimes and conduct rules across markets. Italy’s UniCredit SpA, under Andrea Orcel — a former colleague of Ermotti’s at UBS — has built up an economic interest of more than 20% in German lender Commerzbank AG, reviving debate about European banking markets traditionally divided along national lines.
UBS’s own balance sheet expanded almost 60% with its 2023 rescue of beleaguered rival Credit Suisse. About $224 billion of those assets, or approximately one third of the total from Credit Suisse, were transferred to a non-core unit.
The UBS CEO also noted that the US banking market has a lot of “over capacity.” The bank has spoken about buying a US wealth manager in the medium term.
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