European banks step up mergers and acquisitions

The European banking sector is facing a wave of consolidation, as institutions seek to strengthen their market position, expand their asset base and improve returns, Global Finance Magazine reports. The cited source shows that, with interest rates stabilizing and capital reserves at healthy levels, banks are taking advantage of strategic acquisitions aimed at fueling their growth and boosting their profitability.

Global Finance recalls that the European banking group UBS completed its landmark acquisition of Credit Suisse in July 2024, marking one of the largest transactions in the sector. In the UK, Nationwide completed its acquisition of Virgin Money, while Italy's UniCredit is looking to increase its stake in Germany's Commerzbank. Dutch lender ING has also signaled its intention to acquire rival banks in key European markets.

Higher interest rates and improved capital buffers have bolstered European banks' ability to make acquisitions. As interest rates start to fall, M&A activity could gain new momentum as banks seek higher profitability in an increasingly competitive environment.

"There are a number of possible explanations for the acceleration in European banking deals," says Russ Mould, chief investment officer at AJ Bell. "These include a push for further consolidation to boost margins and return on equity - particularly in the EU, where the banking system remains highly fragmented. Strong balance sheets that easily meet regulatory requirements allow for room for M&A, even after increasingly generous dividend payouts and share buyback programs."

Despite the increase in M&A activity in the European banking sector, such a challenge may take some time for the largest banks in the US and China, as these institutions outperform their European rivals in domestic activity, cross-border lending and digitalization.

According to S&P Global Market Intelligence, in 2024, Industrial & Commercial Bank of China accumulated the most assets under management (AUM), at $6.3 trillion. It was followed by Agricultural Bank of China, which amassed AUM of $5.6 trillion, and China Construction Bank Corp., with $5.4 trillion of AUM.

JPMorgan Chase & Co. was the best-placed US bank, with AUM of $3.9 trillion. For comparison, the most successful European bank in terms of AUM was HSBC Holdings of the UK, with investments worth $2.9 trillion.