EU Capital Markets Union plans revived to address funding gaps; Co-op Bank nears £780mn Coventry Building Society merger
EU leaders are committing to revive efforts towards advancing plans for its long-stalled Capital Markets Union at a two-day summit which began yesterday, according to documents seen by the Financial Times.
The CMU, which seeks to remove barriers between the bloc’s capital markets, was first proposed nearly a decade ago, but has faced resistance from EU members over concerns about handing more powers to Brussels.
However, the FT writes that fears of the bloc falling behind the US and China, and the need to find hundreds of billions to finance the continent’s green transition, as well as its military capabilities in the face of growing geopolitical tension, has led to a rethink about proceeding with the initiative.
The European Central Bank estimates an annual investment gap of €800bn to achieve the EU’s 2040 climate goals, in addition to €75bn annually to meet Nato’s 2 per cent gross domestic product military expenditure target.
According to the FT, the revival of CMU discussions follows a demand from German Chancellor Olaf Scholz and French President Emmanuel Macron during a March summit to elevate the issue from the bloc’s finance ministers to the level of EU leaders, who are more aware of its strategic importance.
Proponents of the CMU argue that integrating Europe’s fragmented financial markets would attract and retain capital within the bloc, countering the EU’s current net outflow of €250bn per year, primarily to the US.
However, disagreements persist among member states, particularly regarding financial market supervision.
France and the Netherlands advocate for expanding the authority of the EU regulator, the Paris-based European Securities and Markets Authority, to directly oversee financial institutions across Europe. Conversely, Germany opposes centralised supervision, citing the potential of additional costs for banks and other market actors.
Karel Lannoo, head of the Centre for European Policy Studies, a Brussels-based think-tank, cast doubt on whether the EU’s leaders will be able to find a solution.
“The problem is who will be willing to break some eggs, that’s the issue,” he told the FT. “Everybody has an interest in maintaining the status quo. It will be costly to change it.”
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As reported by Bloomberg, the draft report under consideration outlines the implementation of a joint deposit protection initiative and the possibility of engaging in negotiations with other EU decision making bodies.
The planned vote has faced opposition from bank lobbyists in Germany, France and Austria, who argue that it could weaken financial stability in Europe. They urged lawmakers in a letter on Tuesday to first conclude a related package of measures that some view as necessary to pave the way for joint deposit insurance.
Europe’s efforts towards achieving a banking union have often stalled due to concerns from certain member states regarding risk sharing.
Despite the establishment of the European Central Bank as a single banking supervisor, member states have failed to reach a consensus on establishing a common fund to safeguard depositors. For example, wealthier EU members, such as Germany, have previously insisted that poorer member states must take additional measures to mitigate risks before agreeing to shared liabilities.
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The UK’s Co-operative Bank is reportedly on the verge of announcing a £780mn deal to be acquired by Coventry Building Society, a move that would effectively remutualise the Co-operative Bank and create a combined entity with assets nearing £90bn.
According to Sky News, the two banks are poised to unveil the agreement’s terms as early as today.
The Co-operative Bank’s turbulent history includes a failed 2013 bid to acquire what became TSB’s branch network, revealing a crisis at the bank which led to its near-collapse. A £1.5bn rescue package secured from American hedge funds followed. Subsequent bailouts in 2017 led to Bain Capital Credit and JC Flowers acquiring a 10 per cent stake in the company, with the remaining equity held by a consortium of hedge funds.
The Co-operative Bank and Coventry have been engaging in exclusive talks for over three months, although according to Sky News several issues remain unresolved.
As Coventry prepares for its upcoming annual meeting, a question lingers on whether its 2mn members will have a vote on the potential deal. City of London sources, referenced by Sky News, suggest this will be unlikely due to the impact it would have on the merger’s timeline and the potential uncertainty it would cause.
If the merger goes ahead, Coventry stands to gain substantial ground in both the UK’s retail current account and business banking sectors.
PJT Partners and Fenchurch Advisory Partners are reportedly advising the Co-operative Bank, while JPMorgan and KPMG are advising Coventry.
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Speaking at a conference running alongside the IMF and World Bank’s spring meetings in Washington DC yesterday, de Cos, who also serves as governor of the Bank of Spain, said, “When it comes to banking, it is critical that banks anticipate and oversee the risks and challenges posed by artificial intelligence and machine learning — both at the micro and the macro level — and incorporate them into their day-to-day risk management and governance arrangements.”
De Cos stressed the importance of collaboration among central banks and regulators to establish an effective regulatory framework for overseeing AI and ML usage, particularly as digital innovation continues to foster interconnectedness across borders and sectors.
“Left unchecked, such models could potentially amplify future banking crises,” he added.
Additionally, de Cos announced that the Basel Committee would soon release a comprehensive report addressing the digitalisation of finance and its regulatory implications.
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UBS is planning another round of job cuts as the bank continues to trim its headcount following its rescue of Credit Suisse, as reported by Bloomberg citing anonymous sources familiar with the matter.
According to Bloomberg’s sources, the job cuts are expected to affect more than a hundred positions across UBS’s global investment bank. The layoffs are scheduled to take place in the coming weeks, with additional job losses expected in the bank’s wealth management and markets units, the sources added.
Since UBS’s takeover of Credit Suisse, it has been engaging in a cost-cutting plan that aims to save more than $10bn, with around $6bn allocated to cutting staffing costs. So far, the plan has resulted in over 3,000 job losses in Switzerland and a reduction in headcount of around 70 per cent at Credit Suisse’s securities research unit in Hong Kong.
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Santander has announced that it will exit the mortgage business in Germany and cut around 500 jobs within its operations in the country by the end of 2026, as reported by Reuters, citing a spokesperson from the bank.
According to the spokesperson, Santander’s Germany-based headcount will be reduced to 3,600, with job cuts spread across all Santander Germany entities, including its consumer bank, without impacting its 189-branch network.
“We will aim to achieve the necessary reduction in roles through natural attrition, as well as voluntary and early retirement,” the spokesperson said, noting that all Santander employees in Germany had been informed.
Germany has been grappling with its worst real estate crisis in decades, with mortgage lending experiencing a significant slowdown after a rapid increase in interest rates aimed at curbing inflation deterred potential homeowners.
In 2023, Santander’s German business unit reported a decline of 41 per cent in its net profit to €264mn. Its return on equity currently stands at 7.8 per cent, below Santander Group’s return on equity of 11.91 per cent.
