The European banking industry may have to consolidate further if revenues don’t recover and firms don’t achieve their cost-savings targets, according to a Barclays Plc research note.
The German and Italian banking industry looks “ripe for combination” because it’s “highly fragmented,” Barclays analysts Simon Samuels and Mike Harrison wrote to clients today. They said large, complex and hostile transactions are unlikely.
“Post crisis, there has been some increase in market consolidation, but many European banking markets remain fragmented,” London-based Barclays said. “Faced with poor revenue prospects, industries often explore M&A as the mechanism to reduce cost bases, and in theory at least banks are no different.”
Banks in the region have been cutting costs by eliminating staff and selling assets to meet tougher capital rules under Basel III international standards amid slower revenue due to the sovereign debt crisis. Lloyds Banking Group Plc last month sold a stake in asset manager St. James’s Place Plc, booking a 400 million-pound ($612 million) gain, while Royal Bank of Scotland Group Plc has said it will sell its U.S. operation and shrink its securities unit to bolster capital.
“Five years on from the financial crisis, it is clear that banks are increasingly recognizing that any return to meaningful revenue growth is becoming unlikely,” the analysts said.
Samuels and Harrison said HSBC Holdings Plc, UBS AG and Deutsche Bank AG are in the best position to deliver on “very ambitious” cost-saving targets. Financial-services firms in Western Europe have announced more than 342,000 job cuts since the start of 2009, according to data compiled by Bloomberg.