COVID-19 crisis creates room for mergers& acquisitions between euro zone banks

he coronavirus crisis will create room for mergers and acquisitions between euro zone banks, both domestically and cross-border, since it is reducing profitability margins, European Central Bank supervisor Andrea Enria said on Tuesday.

“This can only be so because the health emergency has reduced profitability margins”, Enria told the Italian daily Il Sole 24 Ore, adding that the central bank was ready to launch a public consultation on how it evaluates mergers.

“We can play a role but we will have to look at what can be done in the legislative field and by other authorities, in particular for cross border mergers” Enria added, referring to regulatory hurdles to an integrated cash and capital management.

Asked about the proposed takeover of Italy’s Intesa Sanpaolo (ISP.MI) on smaller rival UBI Banca (UBI.MI), which received a green light by ECB, Enria said: “Generally we are in favour of M&A deals, albeit cautiously”.

Italy, France, Spain and Germany were among the hardest-hit countries by the COVID-19 crisis in the world. ECB expects the euro zone to suffer a deep recession this year, with losses only partly made up in 2021 as pandemic-related restrictions weigh on output for an extended period.

“To have a clearer view of the impact of the crisis on bank balance sheets, we are carrying out a vulnerability analysis, the results of which will be published next month”, Enria said.