European banks are 'too small to survive': UBS CEO

Too many banks that cannot cover their cost of capital still exist, says UBS Group AG Chief Executive Sergio Ermotti.

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    Sergio Ermotti, chief executive officer of UBS Group AG, believes consolidation among Europe's banks will be needed not only for them to remain in business, but also for them to stay competitive and sustain growth [File: Stefan Wermuth/Bloomberg]
    Sergio Ermotti, chief executive officer of UBS Group AG, believes consolidation among Europe's banks will be needed not only for them to remain in business, but also for them to stay competitive and sustain growth [File: Stefan Wermuth/Bloomberg]

    UBS Group AG Chief Executive Officer Sergio Ermotti said European banks are too small to compete with their U.S. peers and will need to consolidate in order to ensure survival and growth.

    Despite consolidation over the last decade, too many banks that cannot cover their cost of capital still exist, Ermotti said Wednesday at a conference in Zurich.

    "As time goes by, the question for Swiss and EU banks has changed: it is no longer too big to fail, but rather too small to survive," Ermotti said, adding that U.S. banks had left the rest of the world behind, helped by decisive management after financial crisis, the growth of the U.S. economy and the large domestic market.

    Banks in Europe and in particular Switzerland are limited by smaller local markets and so "critical mass" in the banking sector will be essential to remain credible and competitive globally, Ermotti said. UBS, despite its large global client base, only has a market share of 5%, he said.

    The CEO said cooperation with domestic players in target markets is critical to avoid the large costs associated with gaining market share.

    This month UBS reached a deal with Banco do Brasil to create a partnership for investment banking and an institutional-brokerage business in South America. It also partners with Sumitomo Mitsui Trust Holdings in Japan.

    SOURCE: Bloomberg