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The Euro Bankers' Grand Waltz

International Business: Europe

The Euro Bankers' Grand Waltz

Consolidation may soon dissolve national boundaries

In Paris, Bank of France Governor Jean-Claude Trichet struggles to broker a deal between the top executives of Banque Nationale de Paris and Societe Generale, locked in a takeover battle for five months. In Germany, Deutsche Bank and Dresdner Bank gingerly discuss combining their inefficient German retail operations--a precursor to a massive shakeout. Not to be outdone, on Aug. 19, P. Jan Kalff, chairman of Dutch banking giant ABN Amro Holding, declared that he is back on the acquisition trail, eyeing prominent targets in Italy and France, including Societe Generale itself.

Indeed, hardly a day passes without a new sign of upheaval at Europe's top financial institutions. For months now, European banks have been in a race to consolidate their holdings--and build up the bulk needed to compete against global rivals in Europe's newly unified financial markets. Most of the attempted takeovers or mergers up to now have been domestic deals, such as BNP's bid to grab control of both Societe Generale and Paribas, or small, regional linkups, such as that of Sweden's Nordbanken Group and Finland's Merita Pankki."MATTER OF TIME." Now, however, several European banks are preparing to break taboos by lunging after their rivals elsewhere in Europe. Deutsche Bank CEO Rolf E. Breuer and Emilio Botin, co-chairman of Spain's Banco Santander Central Hispano (BSCH) are among those leading the way (table). Says Matthew Greenburgh, co-head of Merrill Lynch & Co.'s financial-institutions group in London: "It's only a matter of time before there's a crossborder merger between two of the really big banks. And if that happens, it will certainly transform the market."

The tumult points to the end of the line for many of Europe's national banks. In an era of the euro, globalization, and the Internet, banks need critical mass and geographical diversity to retain customers and satisfy demanding shareholders. The efforts by Trichet and BNP Chairman Michel Pebereau to build a French national banking champion were a last-ditch attempt to preserve the clubby ways of French finance. Above all, Trichet has been determined to prevent a foreign bank from swallowing up key French institutions. BNP managed to secure 65% of Paribas but only 31.8% of the voting shares of Societe Generale. Daniel Bouton, Societe Generale's chairman, fiercely opposed the BNP takeover.

Although Trichet may be able to pull off a compromise between BNP's Pebereau and Bouton, many analysts expect Bouton to keep fighting by seeking support from other shareholders or backing from a new foreign partner. So far, the takeover battle has produced one victim: Paribas Chief Executive Andre Levy-Lang resigned on Aug. 25. But even if Bouton loses too, it's just a matter of time before the forces of competition pry France's market open. "The French will sooner or later have to accept foreign acquisitions in the banking sector," predicts Ernst-Ludwig von Thadden, research fellow for London's Centre for Economic Policy Research.HAMSTRUNG. The most aggressive predators so far have been banks outside Europe's biggest economies. That's partly because they don't have huge domestic markets. ABN Amro boasts $490 billion in assets but accounts for less than 3% of all deposits in the 11-nation euro zone. That's why the bank wants to acquire Italy's Banca di Roma, in which it already holds an 8.76% stake, or Societe Generale. It's also why ING Group Chairman Godfried van der Lugt has launched a friendly bid for the 58.2% of shares ING does not own in Germany's BHF-Bank. Meanwhile, Spain's BSCH is maneuvering to buy a 40% stake in the Portuguese banking empire controlled by financier Antonio CHampalimaud. And the word in Madrid is that Lloyds TSB Group is negotiating a merger with Banco Bilbao Vizcaya.

As the shakeout gathers pace, no doubt governments will try to control the process. But EU rules prohibit discrimination against bidders on the basis of nationality. And the European Commission--not national watchdogs--is resonsible for improving crossborder mergers. So more bankers are likely to fight when governments try to block them. "There's a growing feeling that the barriers to crossborder banking can be overcome," says Angus Hislop, lead partner for European banking forPricewaterhouseCoopers in London. The floodgates could open any day.By David Fairlamb in Frankfurt, with Carol Matlack in ParisReturn to top

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