Why Barclays and Standard Chartered should merge

SCHUMPETER WOULD like to propose a merger between two British banks, Barclays and Standard Chartered. The suggestion is not a popular one. It was trashed by some analysts in the City of London when it was first floated in May. Some of the people running the firms dislike it. It would create a bank with a big balance-sheet and it involves two unfashionable geographies: Britain and emerging markets. Nonetheless, a union would turn two flawed international firms into a safer, more powerful and more profitable combination. It deserves serious consideration.

Europe’s banks lack scale. They have global reach but not a big, integrated domestic market. The top four lenders are 50% smaller than the top four American firms and 66% smaller than the top four Chinese ones, measured by median revenues. Return-on-tangible-equity (ROTE) in Europe still languishes below the cost of capital after a decade of grim cost cuts. As banks digitise, the fixed cost of staying at the top is rising...



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