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 The sovereign debt crises that nearly caused a break-up of the
single currency in 2011/12 has generated mistrust among banks and
caused an effective breakdown of cross-border bank investment flows
as they hoarded capital at home.
But the ECB's asset quality review, an assessment of the balance
sheets of more than 120 banks that is due to be completed next
autumn, should bring transparency on the quality of banks' loans and
other assets, bankers and regulators at the World Economic Forum in
Davos said.
The initial increase in merger activity is expected to take place
within single countries as weaker companies restructure and accept
effective takeovers by domestic rivals, but bankers believe this
will then spread to a pan-European level.
"The pre-conditions are there," Deutsche Bank <DBKGn.DE> CEO Anshu
Jain said when asked whether the EU health checks on banks and the
move towards banking union would bring cross-border deals.
However, Jain added that progress will not come overnight. "I am not
predicting a wave (of deals)," he said.
Bankers say that the latest checks on capital and stress tests of
banks' resilience to shocks must be rigorous, pointing to the 2011
tests that found no weaknesses among Spanish and Irish banks, even
though the countries subsequently asked for bailouts of their
banking sectors.
European Monetary Affairs Commissioner Olli Rehn said that banks are
already preparing for the results of the stress tests by raising
capital on the market, with about 80 billion euros raised to
strengthen banks over the past couple of years.
There is unlikely to be significant further consolidation in the
Spanish banking sector, which has already shrunk from about 50
players at the start of the sovereign debt crisis to fewer than 10.
ITALIAN DEALS?
Italian banks, however, appear still to have some way to go as the
likes of Banca Monte dei Paschi di Siena <BMPS.MI> and Banco
Popolare <BAPO.MI>, the country's third and fourth-largest banks
respectively, seek to raise more capital.
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Mid-sized Italian banks are candidates for mergers, Bank of Italy
Governor Ignazio Visco and the CEOs of Italy's two largest banks,
UniCredit <CRDI.MI> and IntesaSanpaolo <ISP.MI>, told Reuters in
interviews in Davos.
"For sure, some (mid-level) banks will need some additional
capital. It's possible to start to see consolidation at that level,"
UniCredit CEO Federico Ghizzoni said.
"It will be interesting to see what happens after the asset quality
review, not only in Italy but also at the European level," he said,
adding that he expects cross-border deals.
However, Giovanni Bossi, CEO of smaller Italian bank IFIS <IF.MI>,
cautioned against merging "two small weak players to create a larger
weak one".
Some bankers said that consolidation would not be constrained within
the euro zone because banks need to scale up to afford technological
investment and cut costs.
One banker said he expected a consolidation wave among Swiss private
banks as they move towards a system of automatic exchange of tax
information with foreign authorities.
Another senior executive at a European bank said that the
forthcoming banking union under ECB supervision will also bring M&A
activity. "With time, there will be cross-border mergers," he said.
(Additional reporting by Paul Taylor;
editing by David Goodman)
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