Current Landscape of European Banking Mergers
The recent strategic move by UniCredit to acquire a stake in Commerzbank has reignited discussions about the potential for further mergers and acquisitions (M&A) within Europe's banking sector. This follows the noteworthy hostile bid by Spain's BBVA for Sabadell earlier this year. Despite the European Union's long-standing support for banking consolidation, large-scale deals remain a rarity.
The Push for Consolidation
European supervisors argue that fewer, more robust banks could strengthen the economy and allow European banks to compete more effectively against larger U.S. and Asian rivals. However, the memory of losses and bailouts from past consolidations casts a long shadow over such initiatives. Post the 2008-09 global financial crisis, the majority of significant European banking mergers have been executed out of necessity rather than strategic ambition.
Fragmentation and Its Impact
Banking industry concentration, measured by the portion of assets held by the top five institutions, varies significantly across the EU. Germany exemplifies this fragmentation, hosting hundreds of banks besides the two giants, Deutsche Bank and Commerzbank. In contrast, countries like Greece, Cyprus, and the Baltic states have seen a rise in concentration rates due to crises that forced a contraction in the number of operating banks. Comparatively, the U.S. banking sector shows a higher average concentration but less fragmentation within its larger economies, according to data from the Federal Reserve Bank of St Louis.
Barriers to Cross-Border Mergers
Cross-border M&A in Europe encounters substantial hurdles. Differing national regulations and labor laws, the absence of a unified euro zone deposit insurance scheme, and political factors are significant obstacles. The lack of a cohesive European Banking Union further complicates matters, restricting the ability of banks to transfer resources across borders seamlessly. An example is any prospective full acquisition of Commerzbank by UniCredit, which would have to overcome these challenges, despite UniCredit's pre-existing presence in Germany via HVB.
Recent Major Deals: Lessons and Trends
The landscape of recent European banking mergers has largely been shaped by emergency-driven agreements. A notable example is UBS's purchase of Credit Suisse, orchestrated by the Swiss government to safeguard the financial system. If BBVA's ambitious 12.23 billion euro bid for Sabadell succeeds, it will stand as one of the most significant European banking transactions of recent years, illustrating the scale and complexity of executing major M&A deals in Europe.
