Over the past few years we’ve started seeing some changes in the world economy’s power dynamics. Although press attention has mostly been focused on the tensions between China and the US, Europe has also been making efforts increase their global trade presence. The latest European Parliament elections ended with Germany and France firmly securing their lead role. Their interests may dominate the future direction of the European Unions policy. Britain’s departure from the EU only solidifies German and French influence even further. It also opens up the possibility of an even tighter integration among the remaining members.
Global banking has been instrumental to the growth of the 21st century’s economy. It allows corporations to expand past national borders much easier, since they’re able to rely on financial institutes they already have working relationships with. Having that added level of trust reduces uncertainty and exposure to risk when trying to set up in another country. This is one of the underlying principles that motivated Chinese banks to open up branches in every country, including the US and across Europe, as soon as they opened their doors to China. Meanwhile China itself made an effort to remove all foreign banks from its financial sector and has succeeded in doing so. The result is that four of the worlds five largest banks are all Chinese, with only a single Japanese bank managing to take fifth place.
Although there are no US or EU banks in the top five, sixth place belongs to J.P. Morgan. Sixth place on a global scale is impressive, however, its combined assets of $2,600 billion still pale compared to the Industrial and Commercial Bank of China’s $4,000 billion. China’s government also isn’t afraid to use their banks as instruments to finance the advancement of its political goals. One recent example is their new Silk Road Project. It’s a $900 billion infrastructure plan that aims to modernize the titular ancient trade route. Everyone wants a piece of the project, however, few other countries have enough spare funds to get involved. Chinese banks are of course more than happy to lend money to anyone interested joining the plan, since those debts will be owed to their home country. This bold move allowed Peking to expand its scope of influence at an alarming rate. At the same time it also forced China’s competitors to react.
This brings us back to Europe. Although the economic region serves as the base for a significant number of international banks, looking at their assets on a global scale, most of them only count as mid sized. Germany’s flagship financial institution Deutsche Bank (DBK) has fallen on hard times after being severely set back by the 2008 crisis. Although they still have $1,700 billion in assets, their stock prices have plummeted since then. DBKs stocks have fallen so low there’s been some speculation that they would merge with Commerzbank. There were even some preliminary negotiations, however, they came to an unusually abrupt halt after Commerzbanks experts had the opportunity to look into DBKs inner workings.
Although the deal fell through for now, there’s still some hope. The European Parliaments post-election political climate is favorable for the creation of an European world class top bank. Commerzbank continues to be the most promising candidate due to their role in serving small and medium-sized enterprises. In a sense these companies are the engine of Europe’s economic growth. It’s also worth pointing out that the banks largest shareholder is the German government. Their 15.5% share allows them significant control over the banks operations. Their potential new partner is the ING Group, a world renowned Netherlands based international banking and financial corporation. They rank 24th on the list of the worlds largest banks with their $1,100 asset total. Combining Commerzbanks $462 billion assets with the ING Group would put them over $1,500. Even so they’d still be approximately $200 billion short of Deutsche Banks capital, so they’d have to find another potential partner for the merger. The latest rumors suggest the most promising nominee is the Italy based Unicredit Bank. Their assets are comparable to ING Group, so if all three were to merge it could be the birth of an over $2,500 billion European super-bank.
A bank the size of J.P. Morgan, HSBC or the China Development Bank would certainly be enough to support the European Unions global economic ambitions or at least offset China’s regional advances. It would likely rank somewhere between 6th and 8th place among the worlds largest banks, presumably knocking Bank of America out of the top ten. The only way for the Europe economy to stay competitive is to take on China and the US. If they’re looking for an opportunity to do so, the ongoing trade tension between Peking and Washington is probably the best chance they’ll have anytime soon.