The cross-border strategies of European banks: Effects on performance

Abstract

Are the cross-border strategies of European banks effective? Over the period from2007 to 2012, banking systems experienced some important transformations in severaldimensions including the international expansion, especially in OECD countries. However, European banks further continued their trend of increased foreign bank ownership between 2007 and 2012. Besides, the share of foreign banks assets in Europeanarea remains the same before and after the crisis in 2012 (about 80 % according to thereport of the IMF in 2013). This is mainly due to the regionalization context in whichEuropean banks operate. Therefore, this paper is motivated by an intense internationalization in the banking sector from the beginning of this century until 2012. Afterfive years of consolidation of equity capital and bank stability, many banks considernow again the opportunity to go abroad. We investigate whether the various optionsfor expanding overseas have a positive impact on the profits of European banks. Weanalyse the results in which 42 European banks might expect expansion abroad thoughsubsidiaries, conducting cross-border acquisitions, or forming cross-border partnerships, during the period 2004–12. We find that extending international operationsthrough subsidiaries could have a negative impact on profits, whereas cross-borderpartnerships could improve them.