There was a publish or a guide to cover the methods which can be taken to handle the consolidation of the banking sector especially in the Eurozone from a supervising point of view released, recently on July 1st of 2020. This was done to motivate Mergers and Acquisitions activity in the entire region. The release gave a strong affirmation that most of the European bank could handle the pandemic’s impact well but the long term systemic problems still persisted. In the last few years, Europe’s banking industry had changed drastically into something different than what it was in the year 2008’s global financial crisis (GFC). After the GFC, there was a strict implementations to strengthen their balance sheets significantly from the regulators more particularly regarding the liquidity, quality and the amount of the capital and funding choices made. And in the recent times, the banks have not been able to meet their capital costs increasingly, which resulted in raising alarm over the sustainability. There is also a strong competition from the financial technological institutions (Fintechs) and the overcapacity has flooded the banking sector’s profitability causing ultra-low interest rates due to the Covid-19 pandemic’s economic fallback which only made the situations worst recently. European Union reported that only 0.03 per cent of their assets were returned and with more than half of the Eurozone banks registered a return on assets of 0.1 per cent or lesser than that. Citigroup’s market strategies recently warned that the condition will go only worst moving forward and that the return on the tangible equity (ROTE) for banks in the EU will reach only seven next year.
Anthony Kruizinga, banking and capital markets specialist at PricewaterhouseCoopers (PwC), stated in October that he hopes the ECB guide will pave more way for an accelerated process towards a long awaited European banking alliance. He believes that it is necessary in order to create a much stronger and a more sustainable bank which will be able to compete with the biggies of US and Asian banks for the battle of the continental European market. Banks also need to accomplish economies of scale and have tolerable tools to address other new challenges, such as the digitalization of the banking sector. Citigroup has also specified that the alliance could be a way for European banks to recover from their profitability and be better situated against the possible challenges from COVID-19.
The merging initiative has already began, with Europe having qualified as a marked uptick in important M&A deals during 2020. According to Bloomberg, the region’s banking industry’s M&A volumes were active upto 27 per cent year-on-year to $37 billion between the start of July and mid-December. Spain’s banking sector has been among the most active, with CaixaBank SA announcing its €4.3-billion acquirement of Bankia SA in September to generate the country’s biggest lender with more than €650 billion in assets and a total market capitalization of more than €170 billion, as well as Banco Bilbao Vizcaya Argentaria SA peddling its US assets to PNC Financial Services Group for $11.6 billion.
Giorgio Cocini, co-head of the financial institutions group for Europe, the Middle East and Africa at Bank of America, told Bloomberg in December, that before 2022 they are expecting 4 to 6 large deals in the space, to add to that hopefully there will be soon a Pan-European one. Merging is also supported by the politicians and regulatory establishments that recurrently support the need for healthy European banking leaders to emerge to boost the Eurozone economy. As per all the reports, across Europe over the next three years, with the consulting firm are also expecting around 70 percent of all account openings, deposits, and consumer loan applications to take place digitally during this period.
