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2015-04-08 14:04:59
Banking union or no, an integrated European market is still some way off
Mar 28th 2015 | MADRID AND PARIS | From the print edition
THE announcement on March 20th that Banco Sabadell, Spain s fifth-biggest lender, would spend 1.7 billion ($2.5 billion) buying TSB, a challenger to Britain s four main high-street banks, marks the biggest cross-border banking acquisition in the European Union since the financial crisis. It follows a bid of 1.1 billion ($1.2 billion) in February by fellow Spaniard CaixaBank for the 56% it does not already own of BPI, a Portuguese bank. Is this the start of a long-awaited wave of intra-European deals, after a long post-crisis chill in dealmaking (see chart)?
Alas, no. For starters, Sabadell s purchase is deliberately outside the European core. Sabadell s chairman, Josep Oliu, says his goal is to diversify away from Spain, and TSB would increase the group s assets abroad from 5% to 22% of the total. He likes the British market, where the authorities are keen on welcoming new entrants, growth is healthier and regulation is stable. Second, a genuine single market is one in which banks are able to move capital and liquidity around freely. Regulators are still not keen on that idea. Sabadell has no plans to shift capital across borders. It thinks it can cut costs, especially in IT, and pump more business through TSB s underused branches; any excess capital will, for the moment, stay in Britain.
CaixaBank s Portuguese tilt, which BPI s board has so far rejected, also stems less from pan-European ambition than from the desire to fix a problem that has limited its influence since it invested in BPI 20 years ago. Its offer is contingent on the scrapping of a cap that restricts any shareholder s voting rights to 20%.
There are still lots of deals to be done in Europe. In Portugal Novo Banco, the successor of failed Banco Esp rito Santo, is up for sale. Spain has already restructured brutally, but a few state-owned entities as well as private tiddlers will eventually come to market. Other places need more of a shakeout. In Italy the government has just changed the law to permit mutual banks to convert to joint-stock companies and merge or be taken over.
Rumours swirl as to which bank will acquire Monte dei Paschi di Siena (MPS), the third-largest Italian lender, and smaller Banca Carige, both of which need capital. Germany s fragmented banking system also could use condensing. Deutsche Bank, Germany s biggest, is mulling the sale of all or part of its retail operations. European banks have already cut costs fiercely. Given what promises to be a long period of slow growth and low interest rates, consolidation looks the best hope of boosting profits.
The question is whether the buying is likely to take place within national markets or across borders. Despite Sabadell s move, cross-border mergers suffer from several drawbacks. Andrea Filtri of Mediobanca Securities calculates that in 2004-14 the cost savings on international deals within Europe averaged 16%, compared with 31% on domestic mergers. Guntram Wolff of Bruegel, a think-tank, agrees that national differences in products, disclosure, corporate governance, insolvency law and so on make cross-border mergers more expensive.
Regulatory risks also seem higher for cross-border mergers. BNP Paribas, France s biggest bank, slightly increased its international footprint in 2013 and 2014. But it is trying to dampen speculation that it might be interested in buying either MPS or Commerzbank, Germany s second-biggest bank. It may be that BNP fears bulking up further lest it be deemed more of a global systemically important bank and thus incur higher capital charges.
Within the euro zone, moreover, it is not clear whether national restrictions on capital and liquidity will be swept away. ING, a Dutch bank which like BNP is broadly established in the euro zone, complains that local regulators prevent it from putting the deposits it raises in Germany to use in more capital-starved bits of the euro zone. The installation a few months ago of the European Central Bank as a single regulator for bigger euro-zone banks has not yet changed much. There have been some improvements, a little more leniency on the liquidity side but none on capital, and none in Germany, says Koos Timmermans, the deputy chairman of ING s management board, who remains hopeful that the ECB will take a less parochial approach.
Cross-border consolidation will come to Europe one day, says Mr Oliu of Sabadell. But for the moment he thinks such mergers are likely to be rare, and confined to markets where banks have too little capital to stand alone.