UK and European bank mergers to increase in 2025

Mergers and acquisitions among UK and European banks are set to increase in the coming year as they come under pressure from a combination of lower interest rates, government actions and financial sponsors looking for a way out.

Banks will also look to cut headcount and local branches as they bulk up their balance sheets and trim excess costs to try and shore up their profits, according to law firm White & Case’s latest UK & European Financial Services M&A report.

UK and European banks have enjoyed bumper profits over the past few years as they benefit from net interest income – the difference between the amount charged on loans and paid on deposits – but this will likely diminish in the coming months as rates drop, putting pressure on margins and forcing banks to find other sources of profit.   

“We are more bullish on bank M&A than we have been in the last five years,” said Hyder Jumabhoy, partner at White & Case. “As [a] lower net interest margin environment looms, UK and European lenders which had [previously] shelved transformational deals will need to act quickly, albeit carefully.”

The industry has already seen considerable M&A in the past 18 months, with more than 35 domestic bank consolidations in the UK and euro area in the past 12 months, according to the report, not including those related to the war between Russia and Ukraine. 

This has been particularly acute in the UK, which has seen a number of challenger banks being swallowed up by bigger rivals, such as Coventry Building Society buying The Co-op Bank, and Nationwide buying Virgin Money. Jumabhoy expects this to continue as these challengers come under pressure from financial sponsors who have “remained patient” over the past five years. These sponsors will be pushing for exits, or “transformational transactions”, he added.

There are other reasons why M&A is poised to pick up in the next few months. “Up until recently if a bank had any spare capital and it was trading below book value it was pretty obvious that [it should] do a buyback,” said Andrew Stimpson, head of European bank research at KBW, which would prop up the share price. “As the banks get back towards tangible book value…more banks will be on the lookout [for acquisitions],” he said. 

There has already been a marked increase in cross-border transactions in the euro area, for instance UniCredit’s acquisition of 90 per cent of Alpha Bank Romania. But these could be hampered by slow progress on an EU-wide agreement on the European insurance deposit scheme. “Cross border M&A is going to be more dependent on whether they can get the banking union complete and that’s a political question,” said Stimpson.

Regulators may also be an impediment to potential tie-ups. The Spanish government opposed BBVA’s recent offer to buy Banco Sabadell, citing the expected impact on competition and jobs. However, the deal was approved by both BBVA’s shareholders and the European Central Bank, and BBVA’s chairman Carlos Torres told the Financial Times the deal was “unstoppable”.

Conversely, some governments are prompting deals by divesting holdings in banks they propped up during the European sovereign debt turmoil that followed the global financial crisis, for instance the Hellenic Financial Stability Board Sold down a 22 per cent stake in the National Bank of Greece last year.

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