M&A

29 October, 2009

HSBC sees bank consolidation amid costs pressure

DUBLIN, Oct 29 (Reuters) - Bank consolidation is inevitable around the world as pressure on retail banking margins forces lenders to cut costs, a senior executive at HSBC Holdings (HSBA.L) said on Thursday.

Alex Hungate, head of personal financial services for Europe's biggest bank, said pressure on liability margins from competition for retail deposits could continue as retailers and other new entrants target customers.

Other factors, including increased regulation, low interest rates, declining trust in the industry and capital, liquidity and funding issues and were all putting pressure on retail banking.

"These will result in a huge amount of pressure on costs, and banks will have to reduce their costs dramatically," Hungate said at a conference on the Irish banking sector.

A retrenchment by banks to their domestic markets added to the prospect of consolidation, he said.

"This is absolutely inevitable. It doesn't really matter what the EU does in terms of trying to break up large groups, the market forces over time will drive the consolidation in every market," he said.

There was major consolidation among Nordic banks between 1985 and 1998 after the region's financial crisis, and in the United States the top three banks -- Bank of America (BAC.N), JP Morgan (JPM.N), and Wells Fargo (WFC.N) -- are now stretching their lead over rivals after acquisitions.

"We expect that gap to continue to widen," Hungate said. "Every week in the U.S. there are more small banks failing and the Fed is going directly to these large banks and saying can you take these banks on," he added.

HSBC is targeting cost savings, and earlier this year the head of its Brazilian arm said he aimed to cut costs by 10 percent this year as he followed a group mandate to squeeze costs as the credit crisis bites. [ID:nLV538630] (Reporting by Steve Slater; Editing by Jon Loades-Carter)

Source: http://www.reuters.com