EU Governments Urged to Support Banking Consolidation

WASHINGTON (Reuters) – European Union governments should refrain from interfering with banking consolidation, which the bloc needs to compete with other major economies, according to two senior bank executives on Friday.

The challenge of closer financial integration has become more pressing in the euro zone after Italy's UniCredit last month revealed its stake in Commerzbank and announced it would consider a full takeover, provoking a backlash in Germany.

This move from UniCredit coincided with Germany's defense of its second-largest bank and the release of a report by former European Central Bank President Mario Draghi, who warned of a "slow agony" for the EU if it fails to embrace necessary changes.

"The idea that you can have 27 financial markets in Europe is simply … crazy," said Societe Generale Chairman Lorenzo Bini Smaghi during the annual Institute of International Finance meeting. He suggested a need for a shock to achieve a banking union, expressing disappointment that Europe often reacts only after crises.

Regarding the potential UniCredit-Commerzbank merger, ABN Amro CEO Robert Swaak highlighted that local governments presently hold views that may contradict the general consensus on the need for consolidation.

As governments reduce their stakes acquired while rescuing banks during the 2008-2009 global financial crisis, opportunities for consolidation in European banking are emerging. UniCredit acquired its Commerzbank stake partly from the German government, while the Dutch government announced a reduction in its stake in ABN Amro last week.

Bini Smaghi emphasized that mergers should be determined by shareholders based on added value, arguing that politicians should not interfere in market decisions they do not ultimately control.