Even the ECB Can’t Agree on Making European Bank Mergers Easier

(Bloomberg) --

European Central Bank supervisory board chair Andrea Enria is meeting early resistance to proposals for boosting mergers and acquisitions in the continent's banking industry, underscoring the lingering divisions in the bloc that have frustrated consolidation for years.

A majority of the ECB's supervisory board signaled at a meeting last week that they were skeptical of or outright opposed to allowing banks to move liquid funds from one country to another, a key element of Enria's proposal, according to people familiar with the matter. While there was no formal vote, the opposition risks delaying or even derailing the efforts, the people said, asking not to be identified because the meeting was private.

European banks are reeling from intense competition and the fallout from negative interest rates, but few have succeeded in executing mergers to reduce overcapacity and increase profits. Enria has said he wants to facilitate deals, including making it easier to move liquidity across borders and allowing lenders to rely more heavily on branches rather than separately capitalized subsidiaries.

An ECB official declined to comment.

“The segmentation of banking markets within the euro area is one of the most concerning legacies of the financial crisis,” Enria said in a speech to a group of bankers in late January.

Bank shareholders are also aware of that fragmentation, an issue that U.S. competitors don't face, according to Jean Pierre Mustier, the chief executive officer of UniCredit SpA.

“When I speak to U.S. investors, they invest in U.S. banks, not in a bank of the state of New York or the state of California,” Mustier said in a Bloomberg TV interview last month. “When they look at Europe, they invest in an Italian bank -- UniCredit of course -- but also in a German bank, a French bank. They don't look at European banks.”

Bankers frequently blame the region's patchwork of national regulations, as well as limits on moving money between countries, for the lack of deals. Easing that last obstacle is the most controversial of Enria's proposals, said the people. In Enria's camp, board members argued that European banking oversight has converged far enough for the ECB to grant so-called waivers to allow banks to move liquid funds from one country to another.

Read more: Europe's U.S.-Style Superbank Dream Is Out of Reach

Representatives from some national authorities are arguing such a move isn't warranted, said the people. Their worry is that deposits that are lent out elsewhere in Europe won't be available to meet withdrawals should a crisis hit, said the people.

Enria's supporters are now working to win over skeptics by proposing guidelines for the granting of waivers that are sufficiently conservative to limit them to certain circumstances, said the people. That means banks probably can't expect the ECB to remove the hurdles to cross-border mergers anytime soon.

‘National Barriers'

Enria has previously acknowledged the need to reassure certain states. “Advancing toward a single European market will require not only more integration, but also adequate safeguards for host countries so they feel confident about lowering some national barriers,” he said in the speech in late January.

The answer for several lenders has been to find partners in their home market. Last month, Italy's Intesa Sanpaolo SpA announced a plan to buy smaller competitor Unione di Banche Italiane SpA.

The ECB meeting last week didn't formally discuss that deal, said the people familiar with the matter. Investors are watching the ECB for signs of how it will treat Intesa's bid because it relies heavily on the use of an accounting quirk known as badwill to fund the costs of integrating UBI.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Christian Baumgaertel

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