Market Analysis

Supporters of greater consolidation within the euro zone's banking sector are closely monitoring Spanish lender BBVA's BBVA.MC hostile bid for Sabadell SABE.MC. Comments from various supervisors and lawmakers have also indicated support for increased mergers.

Regulators advocate for more consolidation, both domestically and internationally, believing that fewer, stronger banks will enhance economic stability and improve the competitiveness of euro area banks against larger, more profitable counterparts in the United States and Asia.

However, major banking takeovers have been rare since the 2008-09 global financial crisis, with most deals arising from necessity.

LEVELS OF CONCENTRATION

The concentration of banking assets, as measured by the share held by the top five credit institutions, varies significantly across the euro zone.

In Greece, Cyprus, and the Baltic states, the top five banks controlled between 88% and 95% of assets in 2023, according to European Central Bank data analyzed by Reuters.

Many of these countries have experienced significant increases in concentration over the past decade due to financial crises, which led to stronger banks acquiring weaker ones.

In Spain, where the top five banks hold 69% of assets—a figure close to the euro zone average—the number of banks has decreased from 55 before the global financial crisis to just 10.

Conversely, Germany still has hundreds of banks, according to its central bank data.

BIG BUT FRAGMENTED

On average, banking concentration by country in the euro zone is higher than in the U.S., where the top five banks held 50% of assets in 2021, according to the Federal Reserve Bank of St Louis.

However, fragmentation is much higher in certain euro zone countries, particularly in larger economies like France and Germany, where the top five banks' asset shares are 45% and 34%, respectively, based on ECB data.

These countries have seen minimal consolidation in the past decade, largely because they have avoided the crises that typically prompt regulatory and legislative interventions to dismantle barriers to domestic banking mergers.

Cross-border deals face even more challenges, including different regulations and labor laws, the absence of a euro zone-wide deposit insurance scheme, and political issues.

Banking executives argue that without a comprehensive Europe-wide banking union, which lawmakers have been striving to establish for over a decade, cross-border mergers are unlikely.

EMERGENCY MERGERS

BBVA's 12.23 billion euro ($13.12 billion) hostile bid for Sabadell would be one of the largest European banking deals in the past 15 years.

Elsewhere in Europe, significant mergers have typically occurred only in emergencies. For instance, UBS UBSG.S acquired its troubled rival Credit Suisse last year, following a Swiss government intervention to protect the broader financial system.

Paraphrasing text from "Reuters" all rights reserved by the original author.