The typical dimension of offers between European banks hit a 12-year excessive in 2020, a development that dealmakers anticipate to speed up this yr because the trade seeks better scale to compete with larger US rivals.
The majority of European offers in 2020 have been struck between home rivals, because the continent’s lenders turned to consolidation to deal with damaging rates of interest and the financial disruption unleashed by the pandemic.
Final yr’s signature deal got here in July, when Intesa Sanpaolo grew to become Italy’s largest bank by property by shopping for home rival UBI for €4.2bn. It was the largest European bank transaction for the reason that monetary disaster.
Additional home consolidation is anticipated this yr, with extra transformative cross-border unions forecast to comply with.
“In-market consolidation is a more likely and an easier first step, as we have seen in 2020, even though the industrial logic of more pan-European deals may be sound,” mentioned Guillermo Baygual, co-head of mergers and acquisitions for Emea at JPMorgan Chase.
“Once we see the right conditions emerge in Europe, including more harmonised regulation, then cross-border deals will make more sense,” Mr Baygual added.
In response to knowledge supplier Dealogic, the common value of the 27 M&A offers between European banks introduced final yr hit $477m, up from simply $74m the yr earlier than and the very best for the reason that monetary disaster erupted in 2008.
Whereas the amount of transactions was down on latest years, the numerous enhance within the deal dimension mirrored banks starting to shift their focus from bolt-on acquisitions to transformational offers.
Europe’s banking market has lengthy been seen as too fragmented, with low rates of interest hitting profitability and including to the stress to chop prices. Regulators and policymakers have urged banks to think about combining to enhance economies of scale.
Final summer season, the European Central Bank sought to immediate additional consolidation by saying it will recognise an accounting acquire — generally known as badwill — that may be generated when a bank buys a rival for lower than the truthful value of its property minus its liabilities.
Intesa mentioned one of many foremost points of interest of the UBI transaction was the badwill it will acquire. Alongside Italy, Spain has additionally seen a rise in dealmaking. In September, CaixaBank agreed to purchase Bankia in a $5.1bn deal, and final month Unicaja launched a $928m bid for smaller rival Liberbank.
Sluggish progress in implementing a European banking union has up to now held up cross-border offers. However trade executives consider the coronavirus pandemic has made such transactions extra seemingly.
“I would expect to see some bolder cross-border consolidation emerging in the second half of the year as banks get comfortable with the impact the pandemic has had on their balance sheets,” mentioned Nigel Moden, banking and capital markets chief for Emea at EY, the consultancy.
“The sector generally remains very well capitalised but the last 12 months has favoured scale players so expect to see them looking for well-priced acquisitions as we move into the summer months,” he added.