Analysis – European banks’ record earnings fuel M&A talks as industry pressures persist Reuters
By Sinead Cruise and Tommy Reggiori Wilkes
LONDON (Reuters) – For years, pressure has been mounting on European banks and asset managers to scale up to better compete with American rivals. This year could mark a turning point as more boards explore combinations, executives, advisers and investors say.
European banks have enjoyed a string of record profits and rising stocks over the past two years, but they, like the region’s asset managers, remain far short of US banks after US institutions pulled further ahead.
Competition will intensify in 2025 when US President-elect Donald Trump takes office, when he is expected to cut red tape for US lenders.
“It looks like certain M&A bankers will be very busy in 2025 with the banks they work for posting record revenues,” said Patrick Lemmens, a fund manager at Robeco, who has invested in European banks for decades.
“We are clearly seeing more activity in deals in areas such as alternative investments and FinTech. Whether there will be an increase in European M&A deals between banks will largely depend on policy, even with deals in the same country,” he added.
The biggest bank offers last year were unsolicited or hostile and their fate remains uncertain.
These include BBVA’s (BME: ) €12 billion bid for Sabadell in Spain and UniCredit’s €10 billion bid for Italian rival BPM Banco. Both deals are opposed by governments, but if they pass, expect further consolidation moves, industry experts say.
Asset managers, facing intense competition from cheaper passive products that favor bigger US players, will explore more tie-ups or attract renewed interest from banks such as BNP Paribas’ ( OTC: ) bid for AXA’s fund arm, advisers say.
Allianz (ETR: ) began talking to Europe’s biggest asset manager, Amundi, about a potential tie-up with its Allianz Global Investors unit, but talks then broke off, Reuters reported last month.
Talks that were once non-starters are now on the table and “everyone is talking to everyone,” said one senior executive at an Italian bank.
Already this year, in Italy, a market considered ripe for consolidation, Banca Ifis made a surprise offer of 298 million euros for specialized lenders.
Last year saw the highest annual volume of European financial services M&A deals since 2015, according to EY’s latest industry analysis. In total (EPA:) deal volume reached 52 billion euros ($54 billion), including 10 deals worth more than 1 billion euros, EY said.
Experts say there is also a growing likelihood that US players will attack low-value European rivals, particularly in asset management, with mid-sized active managers with low share prices, such as Britain’s abrdn and Schroders (LON:), is considered vulnerable.
“U.S. companies have grown faster than some of the European players, so that puts them in a stronger position,” said Dean Frankle of the Boston Consulting Group.
“It’s a lot easier to consume something that’s $400 billion (in client assets) if you have $2 trillion — you probably won’t have indigestion.”
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A deal, however, faces the same hurdles of political opposition and regulatory challenges that have stymied deals in the past, executives and experts say.
UniCredit stunned markets in September when it built a stake in Germany’s Commerzbank (ETR: ), sparking a political storm over the loss of the national champion. UniCredit can now wait for regulatory approval and a more favorable political climate before taking the next step.
Benjie Creelan Sandford, equities analyst at Algebris Investments, said falling rates – the European Central Bank is expected to cut by a further 100 basis points in 2025 – should ease demand for immediate M&A capital spending, but there remains much challenges.
“…we would not overemphasize the likelihood of ‘transformational’ M&A for European banks in particular, with the absence of a full banking union still an obstacle to genuine cross-border M&A,” he told Reuters.
In Britain, large institutions Aviva (LON:), Barclays (LON: ) and NatWest are likely to focus on integration once they make acquisitions, a senior UK banking executive said.
Regulators, who have long backed larger eurozone institutions, are unlikely to stand in the way, and the ECB is expected to approve UniCredit’s request to own up to 29.9% of Commerzbank.
However, how the ECB treats the bank’s insurance holdings will be key in deciding the viability of deals, including BNP’s bid for AXA’s unit and BPM’s for Anima Holding.
The so-called Danish Compromise treats banks’ insurance holdings more favorably – making it cheaper for banks that qualify to buy fund managers. The ECB’s top supervisor said last month that the ECB would apply it “on a case-by-case basis”, but analysts are confident the compromise will hold, paving the way for more transactions.
“What is most likely to happen is the unexpected, because often jobs are announced that no one expected,” Lemmens of Robeco added.
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