Sluggish M&A Activity in the EU Banking Sector

Mergers and acquisitions (M&A) in the European banking sector have stagnated at well below pre-financial crisis levels. While M&A transactions totalled 116 billion euros in 2006 and 91 billion euros in 2007, transaction volumes have plummeted to a mere three billion euros in 2017. These are the findings of recent calculations carried out by the Centre for European Economic Research (ZEW), Mannheim, on the basis of the Zephyr database of Bureau van Dijk.

International transactions at the EU level have come to an almost complete standstill; since 2010, they have accounted for less than ten per cent of all M&As per annum, compared with 25 per cent in 2007. The majority of transactions now take place at the national level and predominantly between smaller, regional banks.

“Even large banks tend to focus their activities in domestic markets and only enjoy a limited presence in other EU countries,” says Lea Steinrücke, a researcher in ZEW’s Research Department “International Finance and Financial Management”. This development has not only impacted on efficiency; in adversely affecting capital flows and the distribution of macro-economic risks between EU countries, it has also inhibited the functioning of the European Single Market. “Regulators are therefore increasingly encouraging European banks to engage in cross-border M&As – albeit with little success so far,” says Steinrücke.

Cross-border M&A activity is hampered by regulatory structures

Cross-border M&A activity is hampered by the lack of integrated regulatory and supervisory structures at the EU level. While the Banking Union and the introduction of the Single Rulebook are important contributions towards simplifying cross-border banking and establishing a unified banking market, national regulatory and supervisory differences nonetheless remain between the various EU countries. Furthermore, the ambiguity of the new EU regulations on the unwinding of multinational banks, the lack of a Europe-wide deposit guarantee scheme, and national differences in insolvency law have led investors to be cautious about potential acquisitions.

“In sum, an upturn in M&A activity in the EU banking sector seems unlikely in the near future, and the introduction of the Banking Union and the low profitability of the sector will do little to change this in the short term,” concludes Lea Steinrücke.

For more information please contact

Lea Steinrücke, Phone +49 (0)621/1235-311, E-mail lea.steinruecke@zew.de