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Monte dei Paschi shows challenge of fixing Europe’s weaker banks

The recent wave of M&A has left behind weaker banks such as Banco BPM, Sabadell and, above all, Banca Monte dei Paschi di Siena. Jean Pierre Mustier’s exit from UniCredit shows why.

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The wave of bank M&A sweeping Europe has been good for healthier banks to date.

However, it has not fixed the deepest problems in the sector: zombie banks, loaded down with legacy problems, whether operational, legal or most commonly – especially after Covid – in their loan books.

Take a look at the list of takeovers that have been agreed or launched. Then take a look at a list of parallel would-be deals that have been abandoned, or which have been widely rumoured, and have so far come to nothing – making fire sales or state-led rescues likely.

Exhibit one: talks between BBVA and Banco Sabadell broke down barely two weeks after they were announced in mid-November, apparently due to price. Contrast this with what happened a couple of months earlier between CaixaBank and Bankia, who agreed a far less anticipated €4.3 billion deal with surprising alacrity.

And the difference between these two deals or would-be deals? The profitability of Bankia’s network may be dire due to its overreliance on mortgages – something CaixaBank should help to fix – but its operational and credit risks are easier to know than those of Sabadell.

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