European banks rise as UniCredit’s move on Commerzbank lifts M&A prospects to forefront By Reuters

By Gianluca Lo Nostro and Philippe Leroy-Beaulieu

(Reuters) – European banking shares extended their upward trend on Thursday, driven mostly by UniCredit’s performance report after it bought a 9 percent stake in Germany’s Commerzbank the previous day.

The pan-European banking sub-index rose 1.9% by 1010 GMT, with analysts pointing to increased prospects for mergers and acquisitions in the sector.

ABN Amro led the gainers, up 4% after the Dutch government cut its stake in the country’s second-largest bank to 40.5% from 49.5% on Wednesday. Italy’s BPM and France’s Societe Generale also rose 3.7% and 2.7%, respectively.

Analysts said the three companies are potential subjects for further mergers and acquisitions.

UniCredit’s overseas expansion could spark interest in smaller European banks such as ABN, ING Group said in a research note, while JPMorgan wrote that banks that have historically been considered M&A targets are likely to see a boost to their valuations.

UniCredit may still be open to mergers and acquisitions in its home market, JPMorgan Chase said, highlighting the Italian bank’s previous interest in smaller rival BPM.

Societe Generale is another takeover candidate, according to JPMorgan and Morningstar analysts.

“The market views Societe Generale and ABN Amro as takeover targets,” said Johann Schultz, an analyst at Morningstar. “They trade at discounts to their peers, making them more expensive options, and the sheer size of their market capitalizations makes them easy for potential buyers.”

The Commerzbank deal could lead to a series of unprecedented takeovers within the industry, as European banks find themselves in a strong cash position after years of high interest rates, and with their shares trading at multi-year highs.

But divergent regulations and stringent labor laws could hamper cross-border mergers in the EU’s fragmented banking sector. Previous M&A deals in Europe have typically been undertaken in crisis situations, slowing down consolidation among credit institutions.

“We need structural change in Europe, which has 4,900 banks and 1,300 banks in Germany alone, which confirms our constructive view on the banking sector,” JPMorgan Chase said.