Hurdles to M&A in Europe's fragmented banking sector

By Tommy Reggiori Wilkes and Prinz Magtulis

(Reuters) - UniCredit's purchase of a stake in Commerzbank (ETR:CBKG ) has fuelled speculation about further European banking consolidation, after this year's hostile bid for Sabadell by Spain's BBVA (BME:BBVA )'s.

Supervisors in Europe have long supported the idea of more tie-ups - both within and across countries - because fewer, stronger lenders should boost the economy and enable euro zone banks to do better against larger rivals from the U.S. and Asia.

Yet big banking deals have been rare in Europe since the 2008-09 global financial crisis, with most forged out of necessity after some earlier tie-ups led to losses and bailouts.

SOME CONCENTRATION

Banking industry concentration, as measured by the share of bank assets accounted for by the largest five credit institutions, varies widely across the European Union.

Germany is one of the most fragmented, with hundreds of banks alongside the two big listed lenders, Deutsche Bank and Commerzbank, central bank data show.

At the other end of the range are Greece, Cyprus and the Baltic states, European Central Bank data analysed by Reuters shows.

Several of these countries have also seen the biggest increase in concentration in the past decade, as financial crises forced lenders to acquire weaker rivals.

In Spain, where the 69% share of bank assets in the hands of the top five credit institutions is close to the euro zone average, the number of banks has fallen to 10 from 55 before the global financial crisis.

BIG AND FRAGMENTED

Concentration by country is, on average, higher than in the U.S., where the five biggest banks' assets share was 50% in 2021, Federal Reserve Bank of St Louis data shows.

But fragmentation is much higher in some euro zone countries, especially in bigger and richer economies like France and Germany, the ECB data shows.

These have seen the least consolidation in the last decade.

Impediments to cross-border deals are even greater and include differing regulations and labour laws, the lack of a euro zone-wide deposit insurance scheme and politics.

Banking executives say that without a Europe-wide banking union, which would allow lenders to move resources around freely, cross-border deals are unlikely.

Any UniCredit play for all of Commerzbank would need to surmount these obstacles, although the Italian bank's presence in Germany through its ownership of HVB may make it easier.

IN AN EMERGENCY

Recent major banking mergers in Europe have mostly been agreed during emergencies.

UBS last year bought Credit Suisse after the Swiss government orchestrated a deal to protect the wider financial system.



If it succeeds, BBVA's 12.23 billion euro ($13.12 billion) hostile play for Sabadell would rank as one of the largest European banking deals of the past 15 years.

($1 = 0.9320 euros)

Source: Investing.com