European banks pledged last year to cut more than $1.2 trillion of assets to help them weather the sovereign-debt crisis. Since then they’ve grown only fatter.
Lenders in the euro area increased assets by 7 percent to 34.4 trillion euros ($45 trillion) in the year ended July 31, according to data compiled by the European Central Bank. BNP Paribas SA and UniCredit SpA, the biggest banks in France and Italy, expanded their balance sheets in the 12 months through the end of June.
They have Mario Draghi to thank. The ECB president’s decision nine months ago to provide more than 1 trillion euros of three-year loans to banks eased the pressure to sell assets at depressed prices. The infusion, designed to encourage firms to lend, succeeded in averting a short-term credit crunch by reducing their reliance on markets for funding. It also may be making European lenders dependent on more central-bank aid.
“Deleveraging isn’t taking place, especially in Spain and Italy,” said Simon Maughan, a bank analyst at Olivetree Securities Ltd. in London. “The fact that we haven’t got on with it, or very slowly, suggests that when the time comes we’ll need another ECB injection to roll over the first one, just to keep the balance sheets of Italian banks in business.”
European banks said last year they would cut assets within two years by more than 950 billion euros, about 3 percent of the total, according to data compiled by Bloomberg. By selling divisions and loans and reining in lending, the firms were seeking to reassure investors they would be able to reduce short-term funding needs and increase capital.
Total assets at financial institutions in 17 Eurozone countries stood at 32.2 trillion euros in July 2011, according to the ECB, more than triple the euro area’s gross domestic product last year.
Analysts predicted that European lenders would have to shrink more as regulators requested higher capital and investors, who became less convinced that governments would be able or willing to bail out their largest banks, demanded bigger returns for lending to those firms.
Alberto Gallo, a London-based analyst at Royal Bank of Scotland Group Plc, estimated last year that lenders would have to eliminate as much as 5 trillion euros of assets over five years. The International Monetary Fund predicted in an April report that banks would shrink by as much as $3.8 trillion and curb lending, moves that could cut euro-area GDP by 1.4 percent.