Euro area banks eye mergers as new rules close in

Frankfurt

NEW rules intended to make European banks stronger may end up encouraging them to get bigger, too.

With the European Central Bank now the currency zone's top financial supervisor, the emphasis is on fewer and better-run lenders. Euro-zone banks have more assets - about US$17 trillion - than almost every currency group tracked by the Bloomberg World Banks Index, yet they are among the least profitable. The confrontation between Greece and other euro-area nations is just the latest crisis to beset the region as lenders contend with declining profits and stricter regulatory requirements.

There's only so much cost-cutting that banks can do, making consolidation necessary to increase returns, said Cyril Meilland, an analyst at Kepler Cheuvreux. And with the ECB's stress tests on the top institutions now completed, the regulatory uncertainty that kept acquirers on the sidelines last year has begun to diffuse. Institutions including Italian lender Banca Monte dei Paschi di Siena SpA and even Ger…