More EU bank M&A is mathematical inevitability
02/02/2026 11:13
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. By Liam Proud LONDON, Feb 2 (Reuters Breakingviews) - Chunky valuations are a blessing and a puzzle for European bank bosses like UniCredit's CRDI.MI Andrea Orcel and ING's INGA.AS Steven van Rijswijk. It's a recognition of much higher levels of profitability, compared with the dismal days of low rates, but also a problem for the classic strategy of using spare capital to buy back shares. Increasingly, large lenders will turn to more M&A instead. The 10 biggest members of the EURO STOXX Banks Index, measured by market capitalisation, on average trade at 1.6 times 12-month forward tangible book value. That's more than triple their rating of 0.5 half a decade ago, according to LSEG Datastream figures. Top of the tree are Spanish duo BBVA BBVA.MC and CaixaBank CABK.MC, who both trade at more than twice tangible book value. Only one of the 10 mega-lenders, France's BNP Paribas BNPP.PA with a multiple of 0.9, trades meaningfully below book. At today's prices, it's hard to justify buying back ever-more stock, which was an obvious move back when the banks were heavily discounted. The finance textbook says that retiring shares makes more sense when they're cheap than when they're expensive. Another way of thinking about it is to look at banks' cost of equity, or the implied return investors require to hold their stock. The number can serve as a rough proxy for the return of doing buybacks. At about 11% in Europe right now, according to a rough Breakingviews calculation, it's probably below the returns available from dealmaking, which also offers the chance to generate substantial cost savings. BBVA, for example, touted a 20% return available from its thwarted pursuit of Banco de Sabadell SABE.MC. Of course, CEOs will fear overpaying in an environment of high valuations. But that's less of an issue if the M&A currency is their own inflated stock, rather than cash. The need to put rich valuations to work may also in part explain the recent surge in attempted hostile deals, including by UniCredit's Orcel and BBVA. The numbers suggest more on the way: analysts expect share buybacks to stop growing in absolute terms after this year, based on Visible Alpha data. Logical possible combinations would include UniCredit or Crédit Agricole CAGR.PA scooping up Italy's Banco BPM BAMI.MI, though Orcel's failed recent attempt points to the political difficulties. Spain's Unicaja Banco UNI.MC might offer the chance for Sabadell or Banco Santander SAN.MC to extract some savings. ING and Intesa Sanpaolo ISP.MI have imperious valuations alongside chunky capital levels, though domestic dealmaking may be tricky because of antitrust restrictions. The bigger picture is that euro zone rates have been falling, and most economies still aren't growing quickly. Simply buying back shares sounds a lot like corporate stasis in that environment. M&A brings risks, but may also be the closest thing that many bank CEOs will get to a growth story this year. Follow Liam Proud on Bluesky and LinkedIn. CONTEXT NEWS ING's CEO expects a wave of European domestic bank deals soon, according to a January 28 Bloomberg report. “Now banks are trading at around one-times book, or between one and two times book, we’re in the zone when things start to happen,” Steven van Rijswijk said according to a report of an interview. European megabanks’ share buybacks will stop growing https://fingfx.thomsonreuters.com/gfx/breakingviews/lbpgmarbbpq/european-megabanks-share-buybacks-will-stop-growing-.png Big euro zone banks’ average valuation multiple has tripled in five years https://fingfx.thomsonreuters.com/gfx/breakingviews/egvbbdnajvq/big-euro-zone-banks-average-valuation-multiple-has-tripled-in-five-years.png (Editing by Neil Unmack; Production by Shrabani Chakraborty) ((For previous columns by the author, Reuters customers can click on PROUD/liam.proud@thomsonreuters.com))