Europe’s banking sector is currently seeing a surge in takeover talks, with major players like Italy’s UniCredit, France’s BNP Paribas, and Spain’s BBVA eyeing acquisitions across the continent. However, while high interest rates have boosted profits and fueled the desire for mergers, political and national concerns may hinder the growth of pan-European deals.
UniCredit, led by Andrea Orcel, has increased its stake in Germany’s Commerzbank, following recent expansions in Romania. Meanwhile, BNP Paribas is reportedly considering a bid for insurer AXA, while BBVA presses ahead with its acquisition of Sabadell.
According to Hyder Jumabhoy, M&A partner at White & Case, mergers and acquisitions in the banking sector are “hot” at the moment. This marks a shift from the post-2008 period when banking M&As slowed dramatically due to tougher regulations and financial conditions. Between 2008 and 2020, the number of M&A deals dropped by about two-thirds in terms of assets transferred.
One of the driving factors behind the current merger wave is the high lending rates of recent years, which have allowed banks to generate substantial profits. This has increased their capacity for acquisitions. Furthermore, the decline in borrowing costs is prompting banks to seek out ways to diversify their revenue streams and adapt to changing customer expectations.
“Customers now want a variety of products, not just one,” Jumabhoy explained. This shift has led banks to consolidate expertise and operate multiple brands under one umbrella, which mergers can help facilitate. In the case of cross-border mergers, these deals also offer the opportunity for banks to leverage geographical expertise.
The notion of creating larger banking institutions to increase competitiveness is gaining traction, with experts like Marco Troiano, head of financial institutions at Scope Ratings, stressing the importance of scale. A larger balance sheet, for example, can help banks compete globally, particularly in investment banking.
However, a significant barrier to pan-European mergers is the deeply ingrained preference for “national champions.” EU data reveals that 80% of banking M&A deals in the eurozone between 1999 and 2020 were domestic. This national mindset is evident in the resistance to cross-border takeovers, such as German Chancellor Olaf Scholz’s opposition to UniCredit’s acquisition of Commerzbank.
Meanwhile, French President Emmanuel Macron has expressed support for European banking consolidation, though political backing does not guarantee success. Even with Macron’s endorsement, bureaucratic hurdles remain for cross-border deals, particularly around EU projects like a common deposit scheme.
While large-scale mergers may offer opportunities to strengthen banks, the question of financial stability is another concern. Thierry Philipponnat, chief economist at NGO Finance Watch, warns that mega-banks could become “too big to fail,” posing risks to the wider economy. However, others argue that mergers could improve stability by better distributing risk across countries.
Despite these challenges, the European banking sector is expected to see further consolidation, with larger, pan-European mergers likely to be announced in the first half of next year.
