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Clearly, there is good reason to expect a revival of genuine, value-creating M&A activity among European banks.
New regulations have led to higher capital requirements and operating costs, as well as poor returns on equity.
And the proposed Basel IV regulations, if put in place, will only exacerbate the situation going forward.
Key success factors include a deal’s commercial viability, the financial impact of executing the deal, and whether the deal will actually deliver the expected value over time.
In particular, issues such as the combined entity’s customer base, “fair value” accounting for the banks’ combined assets, tax effects, harmonization of illiquid Level 3 assets and risk-weighted asset models, and impending litigation liabilities may seem like mere technicalities, but they can make or break the viability of any deal.
Banks will be looking to further rationalize their portfolios by divesting poorly performing businesses.