In his Inside Business column (“ECB’s pledge to encourage bank mergers is falling on deaf ears”, July 16) Martin Arnold refers to the falling number of EU banks and the stripping out of costs.
This process will probably continue. What is patently clear is that if any bank is valued at 20 per cent of book value then either book value is inflated or the return on capital employed is seriously inadequate. It should not be beyond the remit of any management team and their consultants to identify divisions that make sub par returns over trailing five year periods.
What the European Central Bank, EU and its member governments must do is reduce the costs that banks incur when rationalising or indeed closing underperforming divisions, the largest of these being the cost of redundancies.
For the banking sector to be modernised and made more efficient such frictional costs clearly stand in the way of a competitive European banking sector. Rationalisation in the long run is a better solution than non-accretive mergers.
Hambleton, Rutland, UK
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