The value of European banking M&A hits its highest point in a decade as lenders hunt for growth across the continent
A potential ramping-up in European banking M&A has become a hot topic as a lower net interest margin environment means European dealmakers are looking to return to the deal table in order to seek growth. However, large bank mergers—particularly cross-border deals—bring inherent challenges, and banks that have already taken the plunge have met both political and regulatory pushback.
Yet the benefits appear too attractive for them to ignore, with a raft of high-profile deals already taking place in Spain, Italy, the UK and Nordics. Alongside the lower net interest margin environment, denationalization of banks taken into government hands during the financial crisis, and the extreme fragmentation of the UK and European banking market, are potent drivers for banking consolidation.
Strong balance sheets, buoyed by a prolonged high-interest-rate environment, are another indication of future consolidation. Lenders across the region are sitting on substantial war chests, increasing their appetite to spend.
M&A activity by value 2019 – 2024
Target location: Western Europe Bidder location: Global Sectors: Retail banking and Investment banking
Explore the data
Effective July 1, 2023, the underlying Mergermarket data supporting the M&A Explorer was consolidated with Dealogic data to produce an even more complete picture of the M&A marketplace. M&A Explorer commentary published before July 1, 2023 may reference data that does not reflect this consolidation.
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M&A data and deals
M&A in Europe’s banking sector rose substantially last year, with a slew of high-profile and sometimes contentious deals taking place. A total of US$43.3 billion was spent across 140 deals in 2024—a more than three-fold value increase year on year and the highest figure since 2013. Deal volume remained level with previous years, indicating a preference for bigger tie-ups in the sector.
The largest deal of the year saw Spanish lender BBVA make a US$13.4 billion hostile bid for smaller national peer Banco Sabadell. While the takeover, announced in April, was initially met with opposition from the Spanish government, it was approved by the European Central Bank in September. The deal is currently undergoing an extended review by Spanish antitrust watchdog CNMC. If the deal completes, it will create one of Europe’s ten largest banks and free up an additional €5 billion in lending capacity.
Following this trend, the second-largest transaction of the year saw Unicredit make a surprise US$10.5 billion bid for local rival Banco BPM. The offer caught the markets off-guard, as Unicredit was already engaged in a takeover stand-off with German lender Commerzbank at the time. As with BBVA’s hostile approach, the deal faces an uncertain road to completion, having met with opposition from Italian government officials and Banco BPM itself.
Another significant deal saw the UK’s largest building society, Nationwide, acquire UK-listed challenger bank Virgin Money for US$4 billion. The tie-up, which aims to create a significant rival to the UK’s largest banks, completed in October following approval from regulators. In another sign of UK banking consolidation, Coventry Building Society—the UK’s third-largest mutual lender—agreed to buy the Co-operative Bank for £780 million (US$971 million) in April 2024. The deal, which successfully completed at the start of this year, will create a merged group with £89 billion in assets.
Market drivers
Several trends look set to encourage M&A in Europe’s banking sector in the coming years. The healthy economic position of banks puts them on a strong footing when it comes to pursuing deals. Profitability caused by a prolonged period of high interest rates, along with rising share prices, mean that banks have well-stocked M&A war chests and are ready to spend.
Meanwhile, as the previously robust market begins to weaken, a lower net interest margin environment means that banks will need to turn to M&A to achieve growth, with pressure on management to deliver the same returns for shareholders.
The denationalization of banking institutions across the continent could be another potential driver for banking transactions over the coming year. European governments that acquired stakes in banks during the financial crisis are now looking to sell, meaning more banks coming to market as potential acquisition targets.
For example, in the UK, NatWest, which is preparing for an end to government ownership after a £46 billion bailout during the crisis, has indicated that it is open to acquiring new business. And in Greece, the Hellenic Financial Stability Fund completed its privatization of four national banks in October last year, paving the way for potential consolidation and dealmaking in the country.
Meanwhile, the inexorable rise of digitalization across the financial sector means that the big players could well look to their “challenger” rivals as key targets. Nationwide’s purchase of Virgin Money is emblematic of this trend.
Several of these drivers have coalesced in Italy. The country is seen as a market ripe for consolidation and is proving a front-runner in Europe’s banking M&A drive. Following Unicredit’s surprise bid for Banco BPM, Italian lender Banca Ifis tabled a surprise €298 million (US$308 million) offer for specialty lender illimity on the table at the start of this year.
Unsolicited bids appear to be gaining traction in the country’s banking sector and could be a sign of more to come.
Market challenges
While there has been an upswing in European banking deal value over the past year, many transactions remain in the balance due to regulatory and political considerations. As seen in the two top European banking deals of the year, national political opposition can be a genuine sticking point when it comes to closing deals.
German chancellor Olaf Scholz, for example, came out publicly to denounce hostile takeovers as unfavorable to banks, positioning the government against such deals. This political sentiment potentially stands in the way of the creation of European “superbanks,” despite market appetite clearly growing.
In addition, cross-border deals face sterner complexities, such as differing regulations, labor laws and corporate governance expectations across jurisdictions. As well as these differences, integration of complex, expensive and potentially risky IT systems can also prove a challenge. Combining legacy systems and configuring disparate data channels can often prove a major stumbling block for banking mergers.
Cultural issues also come into play when attempting a cross-border deal and can put off acquirers looking to enter new markets. In line with this, the strategic drive for synergies and cost-cutting can lead to accusations of “financial exclusion” when cuts involve, for instance, closing bank branches in rural areas, which can deprive non-digitally savvy customers of financial services. In such cases, regulators might step in and block deals.
Outlook
Should deals successfully complete, the incentives on offer arguably outweigh the challenges facing European banking M&A.
The need to compete on a global stage, the lower net interest margin environment coupled with healthy balance sheets, government denationalization programs, and the impact of President Donald Trump’s re-election will continue to drive European banking M&A over the coming year.
Domestic deals, which tend to carry less of a regulatory and cultural burden, will likely be prioritized over more challenging cross-border transactions. However, while cross-border deals can be fraught with difficulties, if one does take place, it could create a domino effect that triggers the rise of European superbanks.
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