The banks in play in European M&A
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The banks in play in European M&A

Investors are pushing bank CEOs to produce growth. Some are now touting their ability to wring cost savings from IT, capital management and the rationalization of wholesale businesses after big mergers. National regulators are losing their power to block cross-border deals. We are almost at the point, Peter Lee reports, where every big bank is in the firing line.

THIS SUMMER, THE head of the European financial institutions group at one of the pre-eminent global investment banks – a veteran adviser on many bank mergers and acquisitions – was having dinner with a group of fund managers. The topic of conversation was not one of his own deals but a smaller transaction – Barclays’ bid for a majority stake in Absa.

Did the fund managers really think, he asked, perhaps just a little mischievously, that it was a good idea for the UK bank to be investing £2.6 billion ($4.6 billion) in a single deal in South Africa?

Their enthusiasm for the deal took him aback. “They absolutely loved it,” he recalls. “And it brought home to me that if a bank management team has credibility, investors are now in the mood to back them to do deals they simply were not prepared to countenance a year or two ago.”

Investors want growth. Many European banks – now sitting on surplus capital, struggling to earn a return on it yet reluctant to hand it back to shareholders – are hard-pressed to present themselves as growth stories. They’ve done the restructurings, shed the non-core businesses and duff assets like industrial shareholdings, knocked out costs through domestic mergers, improved the efficiency of remaining operations and, at the end of it all, have turned themselves into boring utilities.

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