European bank mergers still face hurdles post-stress tests

Sun Oct 12, 2014 3:16am EDT
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By Paul Taylor

PARIS (Reuters) - Health checks on Europe's banks may reveal takeover targets, but because protectionist regulation across the region has yet to be addressed, any post-"stress test" tie-ups are likely to be along national lines and could make a splintered industry more so.

The European Central Bank takes direct authority over the currency area's 120 top banks on Nov. 4 after publishing the results of its review of their balance sheets on Oct. 26.

But prospects for subsequent cross-border mergers have faded since Europe has yet to address national regulators' power to stop capital moving across borders, company law requiring subsidiaries to be run independently and secrecy laws.

All have a chilling effect on cross-border investment.

"There are two key obstacles," said a senior bank executive with long experience of cross-border operations, who spoke on condition of anonymity to avoid antagonizing regulators.

"One is fragmentation that takes various forms - capital, liquidity, legal and structural. The other is that it is inherently more difficult to generate synergies with cross-border mergers."

Bank mergers prompted by the launch of the euro in 1999 have stalled since Lehman Brothers collapsed in 2008 - an event that prompted then Bank of England governor Mervyn King to observe that "global banks are global in life but national in death".

Data compiled by Reuters show cross-border banking mergers and acquisitions in the euro area peaked in 2007 - the year a consortium led by Royal Bank of Scotland bought ABN AMRO of the Netherlands in a deal that turned disastrous for all parties.   Continued...

Protestors left some barbed wire in front of the euro sign landmark outside the headquarters of the European Central Bank (ECB) before the ECB's monthly news conference in Frankfurt, September 4, 2014. REUTERS/Kai Pfaffenbach