Fra Dun & Bradstreet:
DBRS Morningstar has released a commentary discussing the potential for mergers in the European banking industry. The commentary discusses the likelihood of domestic and cross border mergers as well as the most recent consolidation transactions announced in Europe.
Key Highlights include:
• With the negative economic effects of the Coronavirus pandemic (COVID-19) continuing to emerge in Europe, DBRS Morningstar anticipates an increased need for banks to increase economies of scale, generate cost synergies and create institutions that are better prepared to face the challenges ahead.
• Regulators are pushing for further consolidation in Europe and some domestic mergers have been announced/launched (Intesa-UBI and Caixabank-Bankia transactions).
• Whilst there appears to be potential for banking consolidation among European banks at a domestic level, cross-border banking mergers remain difficult due to still high barriers which are largely due to the absence of a full Banking Union in Europe.
“We think further consolidation is possible in Europe as a means for banks to cope with ongoing profitability challenges, although we see these more likely to happen at a domestic level rather than cross border. Whilst regulators are pushing for consolidation, mergers still present significant execution risks and challenges, particularly given the worsening operating environment in which we are likely to see significant growth in Non-Performing Loans when payment moratoria come to an end. Moreover, it will remain key to assess whether any potential combination of two entities effectively reduces risks and creates a stronger bank.” said Maria Rivas, Senior Vice President.