Bank “super-merger” – will Swiss follow suit?

An invitation the Italians could not refuse... Keystone

Europe’s largest-ever cross-border bank merger was finalised on Sunday, sparking speculation about a possible wave of Europe-wide banking consolidation.

But market observers say the tie-up between Italy’s Unicredito and Germany’s HVB Group is unlikely to change the current “hands-off” approach of Switzerland’s two largest banks.

The long-term implications, however, could be considerable – and a move towards a more aggressive acquisition strategy at UBS and Credit Suisse is certainly not out of the question.

“This deal could have an enormous impact on banking across Europe,” Hans Geiger, professor of finance at Zurich University’s Swiss banking institute, told swissinfo. “But the impact on the Swiss market will probably be less, as Switzerland is not in the European Union.

“Also, the banks here have already done their homework over the past decade or so and there is therefore less potential for them to achieve economies of scale through further mergers.”

He points out that Swiss banks began major restructuring well over a decade ago, well ahead of other European countries, resulting in the closure or merger of large numbers of smaller institutions and the creation of just two global players.

New markets

But the search for economies of scale is only one reason why big banks get excited when they see a potential takeover victim (or partner).

Geiger says Unicredito’s primary goal in taking over the German number two was to gain access to HVB’s profitable and growing eastern European business.

“Access to new markets might well be a reason for the big Swiss banks to think seriously about [a larger cross-border acquisition]. The domestic market is fairly mature and new growth is difficult,” he explained.

“Both UBS and Credit Suisse certainly have the financial resources and the necessary experience to do something similar. However, whether they will actually do so is another matter.”

One reason why European banks have stayed clear of major cross-border deals until now is the uncertainty caused by differing regulatory requirements, in particular national and European Union competition laws.

Beat Bernet, director of St Gallen University’s banking and finance institute, thinks Switzerland’s big banks are not alone in preferring a more step-by-step approach to market development – effectively, economies of scale without the costs of “full integration”.

Even last year’s smaller but groundbreaking takeover of Britain’s Abbey by Spain’s Santander banking group had little apparent impact on such strategic reservations.

Who’s next?

If the Italian-German merger does finally remove bankers’ inhibitions, who would be the most likely candidates for further takeover bids?

Dutch bank ABN Amro Holding has made an offer for Italy’s Banca Antonveneta, while Spain’s Bilbao has its eye on Italy’s Banca Nazionale del Lavoro.

And Germany’s fragmented market offers several more potential pickings – Dresdner Bank and Commerzbank are names on many analysts’ tongues, with both France’s BNP Paribas and Britain’s Royal Bank of Scotland said to be interested.

Meanwhile, the head of UBS investment banking, John Costas, was recently quoted in Germany’s Handelsblatt newspaper as saying that Switzerland’s largest bank was looking to expand further in Germany.

UBS currently has a strategy of “bolt-on” acquisitions – effectively, looking for smaller targets to complement its existing strengths at affordable cost, while staying clear of more ambitious integration projects.

At Credit Suisse, CEO Oswald Grübel has also expressed a strong interest in the German market, while indicating that major acquisitions are not currently on the menu.

Customer perspective

Potential merger mania aside, the main impact of the Unicredito-HVB merger could well prove to be on the operational front.

“From a customer perspective – which is what really matters – this could have an enormous impact if they really succeed,” said Geiger.

“If you take the example of a simple cross-border payment transfer, this is still a major headache in Europe, so improvements in this field would be highly significant.”

While Swiss banks still have to struggle with an above-average amount of European red tape, some observers see considerable potential for them to further leverage their strong domestic position in foreign markets.

A recent Europe-wide survey by consultants Booz Allen Hamilton found that Swiss banks still come top in terms of overall customer satisfaction and enjoy a particularly strong position in the retail-banking market.

swissinfo, Chris Lewis in Zurich

Key facts

Unicredito is one of Italy’s largest banks and HVB is number two in Germany.
Europe’s largest cross-border takeover creates a new market leader in eastern Europe, and catapults Unicredito into the position of Europe’s ninth-largest bank.
The top slots still go to HSBC and Royal Bank of Scotland (UK), Deutsche Bank (Germany), UBS and Credit Suisse.

In brief

The Italian-German tie-up has sparked speculation that European bankers may now overcome their resistance to major cross-border mergers.
Switzerland’s two largest banks – UBS and Credit Suisse – are not expected to lead the acquisition field in the immediate future.
However, observers say the longer-term impact of the deal could be considerable.