European lenders are scouting for investment opportunities after Intesa-UBI and Caixa-Bankia kicked off a consolidation race in pursuit of healthier balance sheets and better margins. Possible deals could include Unicredit-Monte Paschi and Deutsche Bank with either Commerzbank, BNP Paribas or UBS.
Intesa San Paolo’s acquisition of UBI Banca in 2Q20, followed by the Caixa-Bankia proposed merger in 3Q20 and possibly Unicredit’s acquisition of the Italian government’s majority stake in Monte Paschi have shaken the market. These deals had something in common, a big national lender acquiring a medium one with an important amount of “badwill” involved and the need to reduce costs. These domestic deals may be more palatable for national regulators and politicians but they may carry on higher antitrust risks, especially in retail and corporate banking where normally the parties have significant overlaps in some regions. This was the case of Intesa and UBI where the combined market share reached 60% in deposits and loans in some regions in the north of Italy. Yet, the political will, and considerable divestitures, appeased regulators and the approval was granted in just two months.
Caixa-Bankia, likely to be reviewed by Spanish regulators and Unicredit-Monte Paschi, to be reviewed by EU regulators, could follow a similar fate. The Spanish lenders face fierce competition from Santander and BBVA as well as from medium and small banks. The Italian banks, despite facing a more concentrated market after the Intesa-UBI deal, will likely obtain the antitrust approval. Combined market shares are expected to be lower than its rivals both at regional and national levels. Additionally, Monte Paschi’s market shares are too low to give Unicredit any leverage to engage in anticompetitive bundling or tying with other products or services.
While other domestic deals may be on the table, including Commerzbank, BNP Paribas, Banco BPM or Unicaja, global lenders such as UBS, Credit Suisse and Deutsche Bank have already shown interest in being part of this consolidation wave. However, these lenders are more interested in cross border mergers, not only because antitrust risks will be lower but also to expand its footprint in Europe and compete better with U.S. rivals.
UBS may be considering a full merger with Credit Suisse (CS). A deal of this size, companies’s assets account for more than Switzerland’s GDP, would likely face some regulatory pushback in their home country given the domestic overlaps in retail and corporate banking. However, UBS’s interest on this deal is driven by CS’s investment banking and wealth management, areas that are more likely to be defined EU-wide and may not be subject to antitrust scrutiny. While a full merger may face antitrust issues, even if the lenders are poised to offer divestitures, the companies may explore other forms of collaboration in the most profitable areas such as investment banking and wealth management.
Deutsche bank is the latest bank to announce its intention to scout for opportunities. After a failed attempt in 2019 to merger with Commerzbank, the bank is now looking at cross border, rather than domestic, targets. This may include BNP Paribas and UBS, though the bank, according to the media, hasn’t engaged yet with any of these two competitors. Other targets in Spain and Italy can’t be ruled out as Deutsche Bank’s strategy for commercial banking outside Germany is focused in these two countries plus Belgium. Any of these possible combinations shouldn’t face a difficult merger review given Deutsche Bank’s limited presence in retail banking in those countries and possible overlaps in asset management, wealth or investment banking won’t be large enough to raise concerns.
