There have been many articles, some cited in this blog, on the trend of European banking consolidation. The typical approach to consolidation is through mergers and acquisitions among market participants. But a recent article in the Financial Times shows that market exits will also lead to consolidation. Although the article focused on the exit of ABN Amro and BNP Paribas from commodity finance, their move is indicative of what other banks in Europe are likely to do as well. Lacking scale and/or competitive advantage banks will begin to exit activities where they will never be able to earn an acceptable return on the capital deployed. These exits will also drive consolidation in the European banking market.
With a bit of pain in my heart from my years of working at ABN Amro, a Financial Times article earlier in the week further emphasised how this consolidation will take place. As noted in the article, ABN Amro stated about its exit from Commercial and Investment Bank (“CIB”): “Over the years, CIB has been unable to generate the required profitability at an acceptable risk level.” The challenge facing ABN Amro in large scale commercial banking also faces many of its European peers. But there has always been pressure to maintain those activities to meet the needs of country specific large commercial clients. The question is whether a local bank is really needed to meet the needs of those clients, especially in competition with truly global banks with a broad product range. ABN Amro has decided the answer to that question for the bank. Will others in Europe be following?
