Cross-border EU bank mergers now possible?

20th March 2007, Comments 0 comments

PARIS, March 20, 2007 (AFP) - Cross-border mergers in the European banking sector, for years viewed as too complex to be practical, are now seen as feasible in light of a more favorable regulatory and techological environment.

PARIS, March 20, 2007 (AFP) - Cross-border mergers in the European banking sector, for years viewed as too complex to be practical, are now seen as feasible in light of a more favorable regulatory and techological environment.

But analysts say that even with recent changes in the sector, emerging market countries are still seen as the most attractive investment areas for big banks in Europe and the United States.

Major European transactions in recent years have included the acquisition of Abbey National of Britain by SCH of Spain in late 2004 and last year's purchase of BNL of Italy by BNP Paribas of France.

But the possible takeover by Barclays of Britain of Dutch group ABN Amro would constitute a deal of considerably greater magnitude, creating an entity with a capitalisation of 162 billion dollars (122 billion euros), based on Monday's closing share prices.

The combined operation would be the world's sixth largest bank and the second largest in Europe.

While the transaction can be explained by ABN Amro's disappointing financial results of late, it also reflects an evolution in the European banking sector.

"Regulation has moved in favour of some cross-border deals, whereas some markets were previously very protectionist, like the Italian market," said analyst Robin Down of HSBC Global Research.

The lack of potential synergies, or economies of scale, which the European Commission in 2005 cited as an obstacle to cross-border mergers, no longer looms as large as it once did.

"From a cost-cutting perspective, I think there's been a degree of harmonisation of products and certainly a degree of harmonisation of IT (information technology)," Down said.

The establishment of shared computer systems needed in a merger can now occur more rapidly and is much less burdensome.

As a result, analysts argue, a potential tie-up between Barclays and ABN Amro could spark other similar moves in Europe.

"There could be a domino effect," said Jean-Pierre Lambert, an analyst with brokerage Keefe, Bruyette and Woods. "Other banks can say: 'We also want to be part of this.'"

Industry experts have identified Capitalia of Italy, in which ABN Amro is the leading shareholder with a stake of 8.6 percent, as a particularly inviting target.

US investment bank JP Morgan has also cited Commerzbank of Germany and Lloyd's of Britain while other commentators point to the French-Belgian group Dexia.

But despite an improvement in the business climate, most analysts predict that cross-border mergers in Europe will proceed at a measured pace.

"There might be one or two knock-on effects from the ABN deal," noted Down.

Added Pierre Chedeville of the bank CM-CIC: "Large-scale cross-border operations in Europe are in theory limited."

He pointed to the high cost of such transactions and a trend toward consolidation mainly among mid-level institutions.

For big US banks, such as Citigroup or Bank of America, the preferred merger or takeover targets are likely to be found in Asia, where competition in the banking market is less intense.

"Their primary focus has been on emerging markets," Down said. "They turn around and say; 'why would you want to buy, let's say, a UK business, where the market is very mature and the competition is very intense, when you could buy a bank in China or Korea."

Industry analysts have said that for banks both in Europe and the United States, possibilities are considered brightest in eastern Europe, the Mediterranean basin and Asia, where growth is robust.

Copyright AFP

Subject: French news

0 Comments To This Article