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European banks need to merge to cut costs: JPMorgan

Tuesday, September 6, 2016 - 17:15

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European banks need to merge to control rising operating costs, although large cross-border deals in the region are unlikely, according to a JPMorgan Chase & Co research report.

[LONDON] European banks need to merge to control rising operating costs, although large cross-border deals in the region are unlikely, according to a JPMorgan Chase & Co research report.

Smaller "in-market consolidation opportunities" are present for banks in Southern Europe, including Italy and Spain, JPMorgan analysts led by Kian Abouhossein wrote in a note on Tuesday.

JPMorgan said it doesn't expect large-scale mergers in European Union because of the regulatory environment, capital constraints and "higher execution risk" of such deals, even though operating expenses have risen by 7 per cent in the seven years since 2008.

"Material cost savings are unlikely to be achieved in the absence of larger M&A transactions, in our view," JPMorgan analysts said in the note.

"M&A driven cost-savings requires return of larger deals."

The report comes after Deutsche Bank AG chief executive officer John Cryan last week urged European banks struggling to shore up profitability to consolidate not just "at a national level, but also across national borders."

The German lender held talks with its biggest domestic rival, Commerzbank AG, though decided instead to focus on internal restructuring first, according to a person familiar with the discussions.

BLOOMBERG

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