Where the gold lies in European FIG


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European bank mergers should be of more interest to European than US investment banks.

FIG bankers talk of the need for a deal that might have a domino effect

The financial institutions group is the traditional core to an investment bank’s coverage model. And although China’s banking sector might now be bigger by assets, Europe remains key to any globally relevant team of advisers to financial institutions. Conducting big bank mergers has been especially hard in Europe over the last few years, and not just because of regulatory uncertainty.

Now, with a new Basel agreement, the regulatory outlook is clearing. European banks have strengthened their balance sheets and cut costs. However, the big European banks will still not spend much time thinking about transformative cross-border mergers, even if it would lead to greater convergence of the continent’s financial sector – a central aim of the EU and the European Central Bank. This is partly thanks to lingering national barriers to the flow of capital and liquidity. No one really expected the sale last year of Banco Popular to be to anyone else other than another Spanish bank, for example. 

FIG bankers at the big firms talk of the need for a deal that might have a domino effect. They have in mind a merger such as ABN Amro and Nordea, or Commerzbank and BNP Paribas. The latter would also add banking fuel to the Franco-German engine of European unity. The problem is that Commerzbank is probably not sufficiently attractive to justify the massive effort and risk involved in buying it, largely because Germany’s wider banking market is so fragmented. 


With low rates and digital challengers, the need for consolidation in the European banking sector is indeed getting more urgent, and it is happening – although not rapidly enough in Germany. This consolidation should be from the bottom up, beginning not with showstoppers to get US investment banks excited but an acceleration of domestic M&A: clusters of local savings and cooperative banks, for example, and preferably the odd merger between those two pillars and the private sector. 

These deals will be of more interest to European than US investment banks. The likes of Morgan Stanley will happily advise top-tier banks swallowing smaller lenders. By contrast, French bank Société Générale advised the Bank of Italy’s resolution fund on the 2017 sale of three small banks to local mid-tier UBI Banca.

US investment banks might have been similarly sniffy about a deal like the €560 million Banca Carige rights issue at the end of 2017. But Carige’s purely private rescue seems to have worked out better than similar situations on a bigger scale; Monte dei Paschi di Siena attracted JPMorgan’s involvement but had to rely on public-sector support, for example. 

Credit Suisse, Deutsche Bank and Barclays will be handsomely rewarded for putting risk to work underwriting the Carige deal. With investors now hoping for a sale of Carige to another mid-tier Italian bank, these European advisers could yet find more gold.