If we look at the ranking of the largest banks in the world by market capitalization (source Investopedia) we cannot find any European bank:
To be picky, HSBC is based in the United Kingdom, but we know that it is essentially an Asian bank with three-quarters of its business in that continent.
The world is dominated by American and Chinese banks. Australia and Canada, “small” countries that have long favored aggregation between banks and today have no more than 3 or 4 national champions, manage to include two names in the Top10. European banks populate many of the positions of the banks that follow them in the ranking but struggle to emerge at the top.
There are several reasons that explain this situation:
- in Europe there are still more than 5200 banks today. The mergers that have taken place have been mainly “national”, often also necessary to allow banks in difficulty to be “rescued” (UBS > Credit Suisse last year, the most recent example).
- the few successful cross-border mergers seen in recent decades (the most important were the Unicredit > Hypovereinsbank transactions and the one that led Banque Nationale de Paris to control BNL) date back to the mid-2000s.
- the low success rate, to put it mildly, of the largest operations of BUT banking (MPS > Antonveneta the Italian tragedy in 2007, Commerzbank > Dresdner Bank the nightmare German in 2009, Royal Bank of Scotland + Banco Santander > Abn Amro the most disastrous cross-border operation in Europe in 2007, in full “bubble” of the banking sector). Since then, as you can clearly see from the Bloomberg graph, the activity of BUT in the sector it has only dropped from 320 billion euros in 2007 to just 15 billion in 2023.
- the Eurozone “crisis” and the problems of NPLs and capitalization that followed which on the one hand made the “mistrust” of central and northern Europe towards the south even higher and on the other brought the banks’ valuations to very low values for a decade, effectively making it impossible to think about acquisitions .
So why are we talking about it today, in this depressing context?
Because finally after a long wait theBUT banking and cross-border aggregations are back in the spotlight: first in Spain BBVA bought Banco de Sabadell for around 11 billion euros and then a few days ago Unicredit took a significant stake in Commerzbank, laying the foundations for another operation strategy in Germany. In 2005, Alessandro Profumo was CEO, now the combative Andrea Orcel.
Today conditions are better with banks returning to good profitability levels and better valuations (price / book averages around unity, doubled from the minimums). There is a lot of capital available, in June 2024 the maximum excess of CET1 (average EU banks) was reached compared to the levels required by the regulators Europeans with over 4 percentage points. In short, the desire to grow, perhaps by buying competitors who are more in difficulty, less well managed and with worse valuations, has returned. And the resources are there.
Europe’s future weight depends (also) on counting as a continent in the world of finance and being able to rival other global giants.
So come on European banking CEOs, follow the example of the good Orcel!
