(News Bulletin 247) – The forced marriage between the first and the second Swiss bank puts a spotlight on these major operations. But obstacles remain and synergies are not evident in all banking businesses.

After a decade of scarcity, the takeover of Credit Suisse by UBS recalls the prosperous period of major maneuvers in the sector, with crises often whetting the appetite of the best-armed banks and transforming the most fragile into prey.

This forced marriage “shows once again that major mergers and acquisitions transactions mainly occur when one of the entities is in great difficulty”, observes Scope analyst Sam Theodore.

JPMorgan Chase which bought the large investment bank Bear Stearns then Washington Mutual in 2008, Bank of America which set its sights on Merrill Lynch the same year or even BNP Paribas which got its hands on Fortis in 2009: the last major banking mergers are born of the rout of certain establishments.

“Are there going to be a series of bank mergers in the coming months? If the answer is yes, it means that we will continue to have a banking system that is suffering”, suggests Mathieu Gosselin, from the cabinet Bartle Council.

Periods of crisis weigh on the valuations of banks, making some of them prime targets for potential opportunistic buyers. They also highlight the difficulties of the most fragile or the least well managed, which were masked until then by a decade of almost free money orchestrated by the European Central Bank (ECB) and the Fed.

Benefits on paper…

“There is a real subject of a race for size” within the banking industry, underlines Mathieu Gosselin, a sector “where competitive pressure on margins is increasingly strong”. The combination of varied expertise and geographies “limits exposure to a risk linked to a specific market or country”, underlines Christian Heinis, partner at the consulting firm Roland Berger, a trap which has closed on the Silicon Valley Bank (SVB), very exposed to the tech sector in California.

By implementing an increasingly thorough harmonization of regulations between countries, the European regulator also facilitates rapprochements.

From there to make the old sea serpents more likely, like the merger often mentioned between the Italian Unicredit and Société Générale, or that of BNP Paribas and the German Commerzbank? Mathieu Gosselin wants to be quite cautious. “One of the obstacles to mergers and acquisitions between banks is ‘what am I buying?'”, he told AFP. “But at this time, caution is in order”.

…Difficult to put into practice

Synergies between banks from two different countries are not always obvious. Network banking “is a local business”, recalls Christian Heinis, and the gains generated by the pooling of administrative functions or information systems are limited by local specificities in terms of products, taxation or regulations, according to him.

The so-called “global” professions, such as market finance, on the other hand, offer more possibilities for economies of scale.

French banking groups have recently concentrated their takeover operations on certain areas of activity, such as car leasing, online banking, or financial services, rather than setting their sights on banking establishments as a whole. .

In the event of a cross-border bank merger project, another aspect should not be overlooked: politics. Letting a company as sensitive as a bank pass under a foreign flag is not easy for a government.

The merger of two establishments also makes the new set even bigger, which is not without risks, notes Eric Dor, director of economic studies at the IESEG business school.

“The merger between UBS and Credit Suisse creates a large systemic global bank of even greater size and which the public authorities would be even more forced to save in the event of a problem”, he notes, denouncing “a form of backtracking and of forgetting the lessons of the financial crisis”.

(With AFP)