Obstacles to M&A in Europe’s fragmented banking sector By Reuters

By Tommy Reggiori Wilkes and Prinz Magtulis

(Reuters) – UniCredit’s purchase of a stake in Commerzbank ( ETR: ) fueled speculation about continued European banking consolidation after this year’s hostile bid for Spain’s BBVA ( BME: ) Sabadell.

Europe’s watchdogs have long supported the idea of ​​greater bonds – both within and between countries – because fewer, stronger lenders should boost the economy and allow eurozone banks to do better well against bigger rivals from the US and Asia.

However, large banking deals have been rare in Europe since the global financial crisis of 2008-2009, most of which were forged out of necessity after some previous tie-ups led to losses and bailouts.

SOME CONCENTRATION

The concentration of the banking industry, measured by the share of banking assets represented by the five largest credit institutions, varies widely in the European Union.

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

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

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

In Spain, where the 69% share of banking assets in the hands of the top five credit institutions is close to the eurozone 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 US, where the five largest banks’ share of assets was 50% in 2021, Federal Reserve Bank of St Louis data show.

But fragmentation is much greater in some eurozone countries, particularly larger and wealthier economies such as France and Germany, ECB data shows.

They experienced the smallest consolidation in the last decade.

Obstacles to cross-border transactions are even greater and include different labor laws and regulations, the lack of a euro area-wide deposit insurance scheme and politics.

Banking executives say that without a European-wide banking union that would allow lenders to move resources freely, cross-border transactions are unlikely.

Any UniCredit play for all of Commerzbank would have to overcome these hurdles, although the Italian bank’s presence in Germany through its ownership of HVB could make it easier.

IN AN EMERGENCY

Recent major banking mergers in Europe were largely agreed during emergencies.

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

If successful, BBVA’s 12.23 billion euro ($13.12 billion) hostile play for Sabadell would rank as one of the biggest European banking deals in 15 years.

(1 USD = 0.9320 euros)