EU Regulators Pushing For Cross-Border Bank M&A

EU regulators are the driving force behind an upcoming wave of cross-border bank mergers, according to reports in Reuters Wednesday (Dec. 27).

The European Central Bank is reportedly championing consolidation for a variety of reasons.

“The banking union has paved the way for cross-border mergers,” said CB Supervisory Board chair Danièle Nouy earlier this year. “All that’s missing is brave banks that will set sail to explore and conquer this new territory.”

Advocates of market consolidation say mergers and acquisition (M&A) activity will help continue to shrink a crowded, fragmented market. Banks across the eurozone account for 280 percent of the EU’s gross domestic product (GDP), despite the number of banks dropping since the financial crisis. Cross-border M&A would lead to diversified lenders, too, better able to withstand economic pressures.

Reports said advocates also argue that bank consolidation would increase efficiency in the financial services market, and that it would enable larger financial institutions (FIs) in the region to compete more aggressively than their peers in the U.S. and Asia.

There are several major challenges to convincing banks to pursue cross-border deals, however, not least of all the EU’s current regulatory framework. FIs are often restricted from moving cash across borders from one of their subsidiaries to another, while tax and consumer protection rules vary across jurisdiction as well.

Regulatory hurdles mean banks will see smaller savings from any cross-border mergers.

But some M&A rumors have already begun circulating. Reports said Italy’s UniCredit and France’s BNP Paribas could both be interested in buying up Germany’s Commerzbank. News broke in September that a short-term acquisition of Commerzbank is unlikely, but unnamed sources told reporters at Bloomberg that executives were in early talks of a deal. Several other bank executives have also remarked on the potential benefits of cross-border deals.