Europe’s Long-Awaited Wave of Bank M&A Starts to Reshape Sector

(Bloomberg) -- After years in the doldrums, Europe’s banking sector is abuzz with transactions.

The past week has already seen Italy’s Intesa Sanpaolo SpA agree to buy Swiss private bank Reyl & Cie. SA and Spain’s Unicaja Banco SA restarting merger talks with rival Liberbank SA. There’s the potential for even bigger deals to come, with shares in Societe Generale SA and BNP Paribas SA rising Monday on analyst speculation about a potential tie up between the two French companies.

There’s been deal speculation ever since Spain’s CaixaBank SA announced in September it was exploring buying Bankia SA. The 3.8 billion-euro ($4.5 billion) deal to create Spain’s largest domestic bank ignited talks across the continent, where a fragmented finance sector has long tantalized ambitious dealmakers.

Their plans have been boosted by the European Central Bank’s recent attempts to make it easier for banks to pursue deals, which could help them compete globally in the face of negative rates and economic contraction. Even cross-border tie-ups are on the table, although in the past few have succeeded in overcoming the political and regulatory hurdles to forge a profitable merger.

That hasn’t stopped the match-making chatter. Here are some potential deals to come.

Germany

Deutsche Bank Chief Executive Officer Christian Sewing last year held formal -- and ultimately unsuccessful -- takeover talks with cross-town rival Commerzbank AG and informal ones with Swiss lender UBS Group AG. He’s repeatedly said he wants to play an active role in European banking consolidation when it happens.

He privately continues to favor a deal with UBS, Bloomberg News has reported, though he’s publicly ruled out a big deal while the bank completes its current restructuring. Another problem is his bank’s low valuation, which would place it in a subordinate position with almost any other of comparable size.

“M&A may be in the bank’s future, but some self-help progress first could increase chances of any deal success,” Bloomberg Intelligence analyst Alison Williams said in a note Monday.

Commerzbank, too, has often been the subject of takeover speculation. ING Groep NV and UniCredit SpA both expressed interest after its negotiations with Deutsche Bank fell through. It’s unclear how open its new CEO and supervisory board chairman are to M&A and the German government’s 15.6% stake could also complicate matters.

France

Private banking group BPCE is assessing the possibility of taking control of Natixis SA’s insurance and payments businesses, Les Echos reported on Monday, although a spokesperson for BPCE denied such plans exist.

Credit Agricole SA, France’s second-biggest lender, is meanwhile scouting for potential acquisitions in Italy, people familiar with the matter have said. The firm has discussed purchases of small and mid-sized banks in Italy, said the people, who asked not to be identified because deliberations are private. Potential targets include Banco BPM SpA as well as Credito Valtellinese SpA, commonly known as Creval, said the people.

Shares in SocGen jumped as much as 3.7% on Monday, lifting France’s other banking stocks, after a Morgan Stanley analyst said a potential tie-up with bigger domestic rival BNP Paribas could make sense if linked to a simplification of the bank’s networks while also potentially creating “material”synergies.

SocGen Chief Executive Officer Frederic Oudea said recently that domestic consolidation was difficult, while cross borders deals are good ideas but not currently the bank’s priority.

Switzerland

UBS Chairman Axel Weber is studying possible merger options that range from a combination of some back-office functions with Credit Suisse Group AG to a full-blown mega-merger with its archrival.

But a combination of Switzerland’s two largest banks would face major regulatory hurdles as well as additional capital and liquidity requirements, which could outweigh potential cost savings. UBS CEO Sergio Ermotti has long complained that “too-big-to-fail” rules in Switzerland were creating headwinds for the country’s largest lenders.

With both banks having dominant positions in wealth management, a deal could prompt clients to move at least some of their assets to another firm in order to diversify risks. But shares rose at both banks after reports last month.

Weber is said to prefer a cross-border deal with Sewing’s Deutsche Bank, despite talks falling apart last year, and has a long wish list that also includes BNP Paribas. The French bank has a similar market value to UBS and would be a complementary fit on asset and wealth management as well as investment banking. UBS could also be considering options with Commerzbank and British lenders Barclays Plc and Lloyds Banking Group Plc.

Italy

Nexi SpA on Monday agreed to buy SIA SpA in a 4.56 billion-euro deal that creates one of Europe’s biggest payment providers. Nexi is seeking to expand even further and has made a non-binding offer for Denmark-based Nets A/S, people with knowledge of the matter said.

Intesa Sanpaolo SpA earlier this year announced plans to take over Unione di Banche Italiane SpA, while the Italian government has asked UniCredit executives if they’d be interested in buying the state’s majority holding in Banca Monte dei Paschi di Siena SpA, according to people with knowledge of the matter.

MPS has hired Mediobanca SpA to explore strategic options, as the government plans to sell out by the end of next year.

Mediobanca, meanwhile, approached Assicurazioni Generali SpA about acquiring the insurer’s private banking and wealth management unit before ultimately abandoning the plan.

Spain

Banco de Sabadell SA has hired bankers at Goldman Sachs Group Inc. to explore strategic options that could include a sale or merger, Bloomberg reported in September. The bank has approached Banco Bilbao Vizcaya Argentaria SA and Kutxabank SA about potential tie-ups, El Confidencial has reported. BBVA CEO Onur Genc said that the lender would be open to a merger or acquisition if it made economic sense: “If we can find a sweet spot where we can find that value, we will do a deal.”

Smaller lenders are also looking at their options. Unicaja Banco and Liberbank said on Monday they have held talks on rekindling a merger abandoned last year to form the country’s seventh largest bank.

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