London Stock Exchange selling Italian stock exchange operator Borsa Italiana to pan-European operator Euronext; acquisition by Italy’s second largest bank Intesa Sanpaolo of UBI Banca, the fifth largest, to form Italy’s largest bank; Caixabank and Bankia, Spain’s third and fifth largest banks, merging to form that country’s largest domestic bank. Europe has been hit by merger activity and speculation.
We also had chatter about UBS and Credit Suisse discussing a merger, while speculation perennially surrounds the likes of BNP Paribas, Societe Generale, Commerzbank, Deutsche Bank, UniCredit and some of the Nordic banks. For now, Spain and Italy are the focus of attention. Both countries have too many mid-sized players, hence fragmented and regionalized banking markets. “Everyone is talking to everyone,” one bank analyst told me when I asked him about domestic consolidation among Italy’s top 10. He's not wrong:
- Banco BPM, Italy’s third largest bank, had been linked with Banca Monte dei Paschi di Siena (BMPS), the fourth largest, as the government tries to deliver BMPS out of State hands following its 2017 rescue.
- BPM has also been linked to UniCredit, the country’s largest bank until the Intesa/UBI tie-up.
- The government also reportedly tried to force UniCredit into a marriage with BMPS.
- There’s been gossip about BPM being eyed by Credit Agricole as well as BNP Paribas. Both French banks have top 10 positions in Italy, having respectively acquired Cariparma and Banca Nazionale del Lavoro in recent years.
- The future of BPER Banca, which had been discussing a merger with UBI before Intesa stepped in with its unsolicited bid, is on the radar. BPER bought 532 UBI branches in a pre-arranged deal to get the Intesa/UBI over anti-trust objections. But its future might not end there.
In Spain, speculation has emerged around:
- Unicaja, the country’s eighth largest, and the smaller Liberbank, which have resumed talks, having called off formal discussions last year after failing to reach agreement on a share swap. A merger would create the country’s sixth largest bank.
- Reported informal talks between Banco de Sabadell, the fourth largest, and BBVA. (Sabadell, co-incidentally, owns the UK’s TSB Bank but appears keen to sell).
- Sabadell, which has reportedly also been chatting with Kutxabank. the country's seventh largest.
- Bankinter, currently the sixth largest in the country, acquired Evo Banco last year and has been expanding contiguously into Portugal, a market that is culturally very attuned to Spain’s. It had expressed interest in buying Novo Banco, the bank formed from the good assets of the collapsed Banco Espirito Santo.
So far so frenzied. But one critical aspect of these discussions is that they’re domestic. So what do we have on the docket in terms of cross-border bank mergers in Europe, big or small? Here, alas, the cupboard is bare. Alas, that is, for eurozone policymakers pushing for Banking Union and Capital Markets Union (CMU).
The rationale for merger gossip is about building market share in core domestic commercial banking businesses while cutting operating costs, including closing branches in areas of overlap. And being able by dint of bigger balance sheets to create bigger budgets to accelerate digital customer solutions.
For all of their desire to create the same landscape across borders, EU banking regulators have rendered cross-border bank mergers if not impossible then tricky and uneconomic because of stringent rules put in place after the global financial crisis to prevent systemic risk. I’ve been very critical of the (unattainable, in my view) aims and intentions of Banking Union and CMU. See the column I penned earlier this year for The Asset, EU Capital Markets Union 2.0: here goes nothing.
I remain equally critical of the European Commission’s new [tired, old] CMU Action Plan, snoringly unveiled on September 24. It has nothing new. The EU has just shifted its top priority to recovering from the economic crisis caused by the coronavirus. Hardly creative. They say developing the EU's capital markets and ensuring access to market financing will be essential in this task. I just don’t buy the hard line they’ve drawn between economic recovery and capital markets development in Europe’s bank-intermediated model.
The EC says large and integrated capital markets will facilitate recovery, making sure that small and medium-sized businesses in particular have access to funding sources and that European savers have the confidence to invest for their future. Vibrant capital markets, they say, will also support Europe's green and digital transition, as well helping to create a more inclusive and resilient economy.
This is nothing but a tick-box exercise covering all of the in-vogue themes. Economic recovery: tick. Small businesses: tick. Green: tick. Digital: tick. Inclusive: tick. Savers: tick. (Mind you, giving savers a choice between zero bank interest rates and zero/negative bond yields in the capital markets is akin to asking someone if they’d prefer to die by shooting or stabbing.)
As the International Capital Market Association rightly noted on October 1 in its preliminary thoughts on the new CMU action plan, the pan-European primary bond market is generally well developed and integrated.
Away from the banks, stock exchange mergers are all the rage in Europe as market infrastructure operators seek to amass equity, bond and derivatives liquidity as well as pre- and post-trade tools while bulking out revenues. Euronext’s acquisition of Borsa Italiana will make the pan-European operator a key player in equities; Borsa Italiana also operates MTS, Europe’s largest government bond trading platform. Italy will become Euronext’s biggest contributor both to liquidity and revenue when the deal closes in mid-2021.
Unlike the banks, market infrastructure players are, because of the country-based structure of this segment of the financial sector, all about cross-border integration. Western Europe is looking pretty regionally consolidated. With Europe’s two largest economies, the UK and Germany, currently operating or moving to operate single-country infrastructure monoliths – anti-trust issues are likely to keep that as is for now – Euronext is, in effect, the eurozone venue (with some Nordic diversification). Its venues cover France, the Netherlands, Belgium, Portugal, Ireland and Norway. It also has a 70% stake in Danish central securities depositary VP Securities.
Euronext lost a big opportunity to cement its eurozone status this summer when Spanish stock exchange operator BME Bolsas y Mercados Españoles was acquired by Swiss operator SIX Group (which was desperate to have a venue within the EU). Nasdaq’s European venues are concentrated in the Nordic and Baltic markets. Which leaves only the Central and Eastern European exchange scene looking fragmented. The Central and Eastern European Stock Exchange Group actually only houses two exchanges: Vienna and Prague. Exchanges in Poland, Slovakia and Hungary remain domestically owned. For now.
