And senior management has been largely focused on other pressing topics, such as rising capital requirements, the implementation of major regulations like Mi FID II and EMIR, and, for some of them, ongoing litigation.
Yet, although few significant deals have closed, pre-merger discussions and newly announced deals are already on the rise, driven by several strategic levers: the need for greater portfolio rationalization, the desire to increase operational efficiency, and the pursuit of strategic growth.
This becomes even more critical in a deal environment in which the number of good targets is limited, and flirting with the wrong targets is simply a waste of time and money.
Yet banks are already selling off some units to lower pressure on their capital ratios, so sellers late to the game will likely find deal values considerably less attractive.
First movers will have a further advantage in finding suitable partners, since the number of strategically attractive targets, and those large enough to make a substantial difference to the acquirer’s profitability, is limited.
To put it bluntly, European banks aren’t doing very well these days.
Business conditions are weak, limiting their ability to boost earnings.
As a result, profitability at most banks in Europe is weak — so much so that few banks are earning back their cost of equity.