European banks need new chiefs | The Economist

European banks need new chiefs

But headhunters are struggling to find them

EUROPEAN BANKS' fourth-quarter earnings, releases of which are clustered around early February, have been surprisingly perky. Those with trading arms, such as UBS or BNP Paribas, rode on buoyant markets. State support helped contain bad loans; few banks needed to top up provisions. Markets should keep them busy and, as the economy recovers, loan volumes should rise. Many banks plan to resume dividends this year.

Yet the chronic illness that has dogged the industry for years remains. Interest rates are rock-bottom, compressing lending margins. Lenders must set aside lots of capital to placate watchdogs, which depresses returns. Costs are sky-high; hard-hit by the financial and euro-area crises, lenders have under-invested in digitisation. And Europe has too many banks, which constrains scale and profits. UBS forecasts the European sector's return on tangible equity (ROTE) will hit 8% by 2022-above last year's 5.6%, but still below its cost of capital of 10%. Its price-to-book ratio hovers around 0.5, below its lowest point in 2009.

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