Banking: Bought to book – the valuations that will drive European bank M&A
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Banking: Bought to book – the valuations that will drive European bank M&A

With interest rates at rock bottom, even the best banks in Europe are struggling to find new ways of boosting profits organically. The continent needs to consolidate, and at the hands of its better-run banks. Euromoney takes a close look at price-to-book values to see which those banks might be – and which deals could get put together as regulatory uncertainty clears and M&A activity picks up.


Illustration: Pete Ellis

Could Santander buy Commerzbank? Could ING or Intesa Sanpaolo buy some of the Italian, Portuguese, and Spanish banks? A look at data on European banks’ relative valuations suggests similar deals could be possible, as banks try to add value by taking over weaker rivals and, perhaps, as a single regulator makes it easier to build pan-eurozone banking operations.


The price-to-book-value ratio is crucial to bank M&A discussions, as it helps determine the price at which banks can bid. Portugal’s BPI, for example, rejected a takeover by Spain’s CaixaBank earlier this year. But it would have been difficult for CaixaBank to raise equity to make a more attractive offer, analysts argue, given its below-book valuation – around 0.94x, according to Berenberg. 

“All things being equal, a bank with a low multiple to book value is generally less likely to do M&A,” says Graham Gilles, chairman of financial institutions group for EMEA at Citi. 

However, it is also the relation to other banks that matters. Acquisitions of targets with higher valuations can dilute shareholders. “Many banks could in theory improve their positioning from a business model perspective by doing M&A, but they can’t because of their share price,” says Michael Frieser, head of European FIG at Bank of America Merrill Lynch.

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