European banks want to catch up with Chinese and American ones, so they started to prepare for consolidation actively. European banks have a 6.7% return on capital on average, the lowest of any region, according to a trade publication the Banker.
Mergers and acquisitions would also help them make the big investments in popular technology platforms and data analysis required to keep up with digitization. As it is, parts of the region are massively overbanked, especially when compared with post offices, which are also stalwarts of the analog era.
There are two main schemes. The first is the takeover of one financial institution by another, in which the latter ceases to exist in the market. The second is the formation of a new bank by the merger of two or more previously created organizations, the merged banks disappear from the market and transfer the assets to a new financial institution.
When Caixabank and Bankia, announced on September 3rd that they were exploring a merger to create Spain’s biggest domestic lender, analysts were satisfied. If the deal happens, it will boost consolidation within the Spanish market. It may also inspire similar deals elsewhere in the European Union.
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