BNP Paribas CEO Jean-Laurent Bonnafé: Europe’s Regulations Limit Bank Mergers

BNP Paribas CEO Jean-Laurent Bonnafé reportedly expressed skepticism about the potential for a revival of mergers and acquisitions (M&A) activity in European banking.

Speaking Tuesday (May 14) at a shareholder meeting, Bonnafé highlighted the economic challenges of cross-border and domestic deals in the industry, dampening hopes for increased consolidation, Reuters reported Tuesday.

Bonnafé’s comments come at a time when Spain’s BBVA launched a hostile takeover bid for domestic peer Sabadell, and French President Emmanuel Macron called for more banking consolidation in Europe, according to the report.

However, Bonnafé argued that the economics of such deals rarely make sense, especially for non-domestic players, the report said.

Bonnafé pointed out that cross-border banking deals in Europe face numerous hurdles, including differing regulations and labor laws, the absence of a euro zone-wide deposit insurance scheme, and political considerations, per the report.

He compared the potential cost synergies in acquiring a Texas bank as a Californian bank, which could be 100, to the significantly lower number of synergies, around 33, in a similar scenario between two different European countries, according to the report.

European regulators have long advocated for more consolidation in the banking sector to enhance financial stability, the report said. Macron echoed this sentiment, emphasizing the need for dealing as Europeans to necessitate consolidation.

However, Bonnafé also emphasized that even domestic banking deals face challenges. Buyers often have topay a premium for the target, and larger banks require even more supervision, per the report.

Sergio Ermotti, CEO of Swiss bank UBS, which successfully rescued rival Credit Suisse in a significant banking deal last year, expressed a similar sentiment, according to the report. Ermotti stated that achieving European consolidation without a banking union and a proper framework would be difficult.

BBVA’s hostile takeover bid for Sabadell came days after Sabadell rejected an earlier merger proposal. BBVA’s latest bid mirrors the terms of the previously rejected one, which Sabadell’s board of directors concluded did not align with the best interests of the bank and its shareholders. BBVA said the offer was generous.

The UBS purchase of its struggling rival Credit Suisse in March 2023 came after nine days of uncertainty around the banking sector as Credit Suisse saw its shares shed a quarter of their value.