The Guardian
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Hard times bring European banks closer


Sergio Ermotti

Sergio Ermotti

UBS (UBSG.S) Chief Executive Sergio Ermotti picks his words carefully. So it was no slip of the tongue last month when he urged his peers in the traditionally cut-throat banking industry to work together to lower costs.

“Talks and conversations are going through between banks on how to move to the next level. It’s slower than I would consider … necessary,” Ermotti said at the Swiss bank’s results presentation.

“I’m positive that, like many other industries … we’ll have to converge together to share economies of scale,” he said, adding that convergence did not necessarily mean mergers.

Some teamwork has already started.

Among the most advanced is Symphony, a two-year-old project to cut down the number of communications systems banks use. Eighteen banks and asset managers have invested in development of the new messaging platform to rival alternative services such as Instant Bloomberg and Thomson Reuters’ (TRI.TO) Eikon Messenger.

Banks are also collaborating on a centralized data platform called Clarient Entity Hub, in a push for greater transparency and standardization of ‘know your client’ regulatory demands.

But rising costs are pressuring banks to do more.

Despite years of apparent belt-tightening, operating costs at Europe’s top seven investment banks have increased by a quarter since 2007, according to data collated for Reuters by research firm Tricumen.

As operating revenue fell to $72 billion in 2015 from $81.5 billion in 2007, the amount of the banks’ income eaten up by costs has risen to 88 percent from 62 percent, the data showed.

High costs are in part due to hefty writedowns and payouts for litigation for a series of financial scandals.

Record-low interest rates, penalties for hoarding cash with central banks, tough financial markets and conservative trading, have made the situation worse still.

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