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Being a big global bank is not worth the hassle: investor poll

[LONDON] Being one of the world's top 30 banks is not worth the hassle of extra regulatory scrutiny and capital requirements, according to a poll of financial industry investors last week.

Morgan Stanley said 62 per cent of investors polled at its European financial industry conference said the negatives of having a global banking business outweighed the benefits as regulations had "become overbearing" for the largest firms.

Only 28 per cent of investors said the benefits of being a large and truly global firm outweighed the negatives, and 10 per cent of the 60 people polled were undecided. "

We found it striking that some management teams are seeking to make their businesses simpler, and we believe investors would reward the restructuring potential if strategy is clear and perceived as achievable," Morgan Stanley analyst Huw van Steenis wrote in a note to clients on Wednesday.

Thirty of the world's biggest banks are dubbed global systemically important banks, or G-SIBs, which must hold between one and 2.5 per cent extra capital from the start of 2016 and also have a buffer of debt that can absorb losses, so they are less likely to collapse.

These banks, which include HSBC, JPMorgan, Citigroup and China's ICBC, also typically come under extra scrutiny from national regulators.

Banks, particularly many in Europe, are cutting down in size to save costs and simplify their operations. "We were struck by how many of the management teams we met are trying to reconfigure their business, whether through stretching cost cutting goals via digital in the UK and Nordic banks or shrinking investment banking or addressing balance sheets, such as in Italy," van Steenis said.

He said legacy systems, bad loans and businesses not making returns above their cost of capital remained material challenges for the firms, however.

A majority of investors at the conference said they expect European banks to raise at least 20 billion euros (S$29.8 billion) more equity this year.

Morgan Stanley said 41 per cent of investors polled said banks would raise 20-30 billion euros, 9 per cent expected them to raise 30-40 billion and 13 per cent expected them to raise 40 billion or more.

A majority of investors said they expected the European Central Bank to require banks it regulates to hold core capital of at least 11 per cent in the future.