What is M&A and why does it matter for banking stocks?

M&A stands for Mergers and Acquisitions, which involves companies combining through various transactions. In banking, M&A matters because it allows institutions to gain scale, cut costs, and improve profitability. When banks merge, they can eliminate duplicate operations, expand their customer base, and increase their competitive position. For investors, banking M&A can create value through higher stock prices for acquisition targets and improved long-term performance for successful acquirers.

Why is UniCredit's stake in Commerzbank significant?

UniCredit's 29% stake in Commerzbank is significant because it represents the first major cross-border banking acquisition in Europe in many years. This move signals that regulatory attitudes toward European banking consolidation have changed, potentially opening the door for many more similar deals. The European banking sector has remained highly fragmented compared to the US, with many smaller, less profitable banks. This transaction could be the catalyst that triggers a wave of consolidation across the continent.

How do investment banks benefit from increased M&A activity?

Investment banks benefit from M&A activity by earning advisory fees for helping companies plan, negotiate, and execute merger transactions. These fees are typically calculated as a percentage of the total deal value, so larger transactions generate bigger fees. Investment banks also earn additional revenue by providing financing for deals, conducting valuation analysis, performing due diligence, and helping with regulatory approvals. For pure-play advisory firms like Lazard or Evercore, increased M&A activity directly translates to higher revenue and profit.

What's the difference between European banks and investment banks in this theme?

This theme includes two distinct types of financial institutions: European universal banks (like Deutsche Bank and Santander) that provide retail and commercial banking services, and global investment banks (like Goldman Sachs and Morgan Stanley) that specialize in advisory services. The European banks are potential participants in mergers and acquisitions - they could be buyers, sellers, or merger partners. The investment banks, on the other hand, would advise on these deals and earn fees for facilitating transactions, but aren't typically merger candidates themselves.

Why has European banking consolidation been slow until now?

European banking consolidation has been slow for several reasons. Regulatory barriers made cross-border mergers difficult, with different countries having varying rules and supervisory frameworks. Political concerns about job losses and protecting national banking champions also created obstacles. Additionally, many European banks struggled with profitability, bad loans, and legacy issues following the 2008 financial crisis and European debt crisis, making them less attractive merger partners. Recent regulatory harmonization through the European Banking Union and improved bank balance sheets have now created more favorable conditions for consolidation.

15 handpicked stocks

European Banking M&A

UniCredit's major stake in Commerzbank signals the start of European banking consolidation. Our experts have selected companies positioned to benefit from this wave, including potential M&A targets and the investment banks that will earn fees from these deals.

Han Tan | Market Analyst

Updated 2 days ago | Published at juillet 10