Analysis: European banks' record takings fuel M&A talk as pressures on industry persist
13/01/2025 06:00
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Deregulation under Trump and falling rates add to pressure
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European finance M&A hit 9-year high in 2024, more
expected
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Big European financial deals still at mercy of politics
By Sinead Cruise and Tommy Reggiori Wilkes
LONDON, Jan 13 (Reuters) - For years, pressure on
European banks and asset managers to bulk up to better compete
with U.S. rivals has been mounting. This year may mark a turning
point as more boardrooms explore combinations, say executives,
advisers and investors.
European banks have enjoyed a run of record profits and
soaring shares .SX7P in the past two years but they, like the
region's asset managers, remain far smaller than U.S. peers
after American institutions pulled further ahead.
Competition will intensify in 2025 as U.S. President-elect
Donald Trump takes office, when he is expected to slash red tape
for U.S. lenders.
"It seems certain M&A bankers will be very busy in 2025 with
the banks where they work booking record revenues," said Patrick
Lemmens, a fund manager at Robeco, who has invested in European
banks for decades.
"We see clearly more deal activity in areas such as
alternative investments and FinTech. Whether there will be an
increase in Europe's M&A deals between banks will very much also
depend on politics, even with deals in the same country," he
added.
The biggest banking bids last year were unsolicited or
hostile and their fate remains uncertain.
This includes BBVA's BBVA.MC 12 billion euro play for
Sabadell SABE.MC in Spain and UniCredit's CRDI.MI 10 billion
euro offer for Italian rival BPM Banco BAMI.MI . Both deals are
opposed by governments but should they go through, expect more
moves at consolidation, say industry experts.
Asset managers, faced with intense competition from cheaper
passive products that favour the bigger U.S. players, will
explore more tie-ups or attract renewed interest from banks such
as BNP Paribas' bid for AXA's AXAF.PA fund arm, advisers say.
Allianz ALVG.DE began talking to Europe's biggest asset
manager, Amundi AMUN.PA , about a potential tie-up with its
Allianz Global Investors unit, but the talks then stopped,
Reuters reported last month.
Conversations that were once a non-starter are now on the
table and "everyone is talking to everybody else", said one
senior Italian bank executive.
Already this year, in Italy, a market considered ripe for
consolidation, Banca Ifis IF.MI made a 298 million euro
surprise offer for specialty lender illimity ILTY.MI .
Last year saw the biggest annual deal volume of European
financial services M&A since 2015, EY's latest industry analysis
shows. Total deal volume hit 52 billion euros ($54 billion),
including 10 deals worth more than 1 billion euros, EY said.
Experts say the likelihood of U.S. players swooping on lowly
valued European rivals is also building, especially in asset
management, with mid-sized active managers with weak share
prices, such as Britain's abrdn ABDN.L and Schroders SDR.L ,
seen as vulnerable.
"The U.S. firms have been growing faster than some of the
European players, so that puts them in a stronger position,"
said Dean Frankle at Boston Consulting Group.
"It's much easier to consume something that's $400 billion
(of client assets) if you're $2 trillion – you're probably not
going to get indigestion."
NO CERTAINTY
Clinching deals, however, face the same hurdles of political
opposition and regulatory challenges that hindered past
dealmaking, executives and experts say.
UniCredit stunned markets in September when it built a stake
in Germany's Commerzbank CBKG.DE , triggering a political storm
about losing a national champion. UniCredit may now wait for
regulatory approval and a friendlier political climate before
its next move.
Benjie Creelan Sandford, Equity Analyst at Algebris
Investments, said falling rates - the European Central Bank is
expected to cut by another 100 basis points in 2025 - should
ease the immediate capital consumption M&A deals demand, but
that plenty of challenges remain.
"...we would not overstate the likelihood of
'transformational' M&A for European banks in particular, with
the absence of a full banking union still a hurdle to truly
cross-border M&A," he told Reuters.
In Britain, big institutions Aviva AV.L , Barclays BARC.L
and NatWest NWG.L are likely to focus on integration after
making acquisitions, one senior UK banking executive said.
Regulators, long supportive of bigger institutions in the
euro zone, 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.
Yet how the ECB treats banks' insurance holdings will be
crucial in deciding the viability of deals including BNP's offer
for AXA's unit and BPM's for Anima Holding ANIM.MI .
The so-called Danish compromise treats banks' insurance
holdings more favourably - making it cheaper for banks which
qualify to buy fund managers. The ECB's top supervisor said last
month that the ECB would apply it "case by case", but analysts
are confident the compromise will hold, clearing the way for
more transactions.
"What will most likely happen is the unexpected as often
deals are announced nobody was expecting," Robeco's Lemmens
added.
($1 = 0.9700 euros)
(Additional reporting by Valentina Za in Milan and Iain Withers
in London, Editing by Louise Heavens)
((thomas.wilkes@tr.com; +44 (0) 7769 955711;))