On January 12, the ECB published final guidance on its new supervisory approach to bank consolidation.
It will allow an acquirer to count the difference between book value and the price paid for a target – the badwill so plentiful among European banks trading at wide discounts – towards the capital of the combined entity.
That is, so long as management doesn’t try anything crazy like paying it out as dividends.
The ECB wants acquirers to hold on to that capital to make merged banks more sustainable, by which it means ensuring they can absorb losses on a target’s bad loans.
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