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EU banks seek global prize
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September 24, 1999: 9:29 a.m. ET
Europe gears for global financial service battle with $162B in takeover deals
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LONDON (CNNfn) - The audacious $34 billion takeover bid launched Friday by Bank of Scotland for its larger rival National Westminster is the latest a series of huge offers and deals that are transforming Europe's financial sector.
The globalization of financial markets has seen a rush for scale among institutions, prompting an unprecedented volume of mergers and acquisitions activity in Europe as the region's institutions seek to fend off the advance of U.S. and Japanese banks.
The value of European bank-based M&A activity soared by a third to $162 billion so far this year, according to Thomson Financial Securities Data.
Europe already accounts for five of the world's 10 largest banks ranked by assets, but the creation of powerhouses such as Citigroup, and the planned three-way tie among Fuji Bank, DKB and IBJ has placed pressure on the Europeans to create even greater scale.
The deregulation of financial services in the European Union and the launch of the euro have unleashed a wave of merger activity in every EU nation.
International consolidation
The French market still is reeling from the six-month saga of the twin bids by Banque National de Paris for Société Générale and Paribas. BNP was left with only the smaller Paribas.
In Germany, last year's merger of Hypo Bank and Bayerische Vereinsbank to form the country's second-largest bank, HypoVereinsbank, has heralded a round of alliance talks between the largest players.
Dresdner Bank and Deutsche Bank -- Europe's largest -- have been in talks to combine their domestic retail arms. Dresdner also is looking to boost its links with France's Société Générale.
In Italy, Generali's bid for fellow insurer INA has interrupted the takeover plans of Italy's second-largest bank, Sanpaolo-IMI.
The fragmentation of the European banking industry, despite this year's wave of deals and possible deals, has kept regulators from interfering.
Even the merger of the first and third-largest Spanish banks to form BSCH earlier this year passed regulatory muster, not surprising given that the five largest banks in most EU nations still have combined market shares of only around 40 percent.
Britain has one of the most consolidated banking sectors in Europe, with the four largest banks accounting for almost two-thirds of retail and corporate business.
The key trend in 1999 has been the move toward combining traditional banking operations with life insurance and fund management businesses, the so-called "bancassurance" strategy already prevalent throughout much of Europe.
The $11 billion acquisition of Scottish Widows by the largest U.K. clearing bank, Lloyds TSB, signaled a new strategic direction, later backed up by NatWest's planned purchase of Legal & General.
Stay-at-home banking
The one trend that has surprised analysts has been the focus on domestic rather than cross-border deals, with the latter accounting for just 11 percent of this year's deal total, according to Thomson Financial.
The advent of the euro and the deregulation of markets had opened the door for institutions to expand their operations throughout the European Union.
However, while acquisitions may provide the fastest route to establishing a regional powerhouse, banks have focused on maximizing short-term benefits through domestic deals. These tend to offer more scope for cost savings and circumvent the potential for cultural conflicts.
To date, cross-border transactions have focused on Dutch and Scandinavian institutions seeking to expand out of their mature and relatively small domestic markets.
MeritaNordbanken, the Swedish-Finnish company, has been at the forefront of this process, and last week sought to expand its regional network with a bid for Christiania bank, Norway's second-largest.
Fortis Group, the Belgo-Dutch bancassurance firm, and ING also have pioneered attempts to meld the different cultures of banks in different countries. ING last month bought Germany's BHF Bank.
The simple fact is that, as in other global industries such as telecoms and airlines, everyone is talking to everyone.
It may seem to some that Bank of Scotland is brazen in pursuing a rival four times its size, but only until the next deal comes along to transform Europe's financial landscape. 
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BNP
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