Mergers – anglicky

Mergers

United States of Europe. Industrialists keen to exploit the world’s biggest market welcome the phrase. It makes bankers and their supervisors, on the other hand, a bit queasy/sick. Rules and cartels that long protected European banks have gone or are going.

In Holland, Spain, Italy and Denmark governments have encouraged their biggest banks to merge. The task of these national champions is to defend the home market from invasion by other European-Community giants and to push into other markets them. They are caught between the urge to consolidate and the will to conquer/gain control. Some are attempting/trying both.

Spain’s five biggest banks held more then a third of the country’s deposits even before the country’s big mergers. Italy, which is also pushing mergers, has the least competitive banking market in Europe. Germany appears to be over-banked, yet most of its banks are small co-operative and savings banks, which do not compete with one another.

In Norway and Switzerland, as in America, the banking system is consolidating not in anticipation of weakness but because of it.

Governments found out that their banks were too small to compete. Spain offered merging banks irresistible tax incentives, including the right to revalue property, industrial holdings and other assets without paying capital gains tax. Banco Bilbao and Banco Vizcaya were the first to take up this offer. They joined in 1988 to form Spain’s biggest financial institution, BBV. Banco Hispano Americano merged last year. Spain’s first experiment with consolidation, the merger of Bilbao and Vizcaya, is a qualified success.

Italy is hurriedly rationalising Europe’s most antiquated banking system. Benito Mussolini designed the structure. Politicians feared that Italy’s high banking margins and controlled competition would draw in other EC banks. The 1990 Amato law opens the door to mergers by allowing state-controlled banks to convert into joint stock companies. Also last year the Bank of Italy relaxed the strict criteria for allowing banks to open new branches. The banks have quickly taken the offer. Many banks are unwilling to merge with others controlled by different party factions/groups.

Merger enthusiasts run two risks: of oligopoly and of over-ambition. The Dutch and Spanish markets already look dangerously concentrated. In Holland, the three biggest banks held 70 % of deposits in 1989. Spain’s five biggest held more than half. The merged banks are also the most expansion-minded.

One popular hedge is alliances a low-risk strategy that usually brings low returns. These allow banks to venture/risk together what they would not dare on their own. The most ambitious venture of this sort is BNP’s alliance with Dresdner Bank, Germany’s second biggest. The idea is to make the banks‘ ambitious international strategies profitable. Dresdner or BNP may someday decide that the rewards of international expansion outweigh the risk of expanding alone. The alliance could then seem a request rather than an opportunity.

The United States of Europe will be fiercely competitive like its American equivalent. A few banks will prosper in it, many will be bruised. Most will forget what should be an iron rule for bankers: that the measure of success is profit, not glory.