A Proposed Megadeal Exposes the Grim Outlook for Europe’s Banks

The world’s largest money manager has a stark warning: More than a decade after the global financial crisis, European banks still face a long and tortuous path to recovery. “Europe is in the midst of a painful, painful transition,” Philipp Hildebrand, vice chairman of BlackRock Inc., said on Bloomberg TV. “I would expect it to entail significant changes in the way banks operate, in their business models, and it will take time.” Until then, he said, investors will probably steer clear.

That the region’s financial institutions, including some of the biggest, are in a state of grinding decline is a grave cause for concern—and not just for their stockholders and bondholders. Europe relies heavily on its lenders to fuel growth. Banks provide about three-quarters of financing to companies and nine-tenths of credit to households. In the U.S., corporations rely on capital markets—selling bonds and shares—for the bulk of their financing.