A hypothetical merger between Banco Santander and BBVA would mean the largest merger in European banking. It would also have a high return on investment and low integration risk, according to the services firm Alvarez & Marsal and reported by Europa Press.
In its latest report called ‘The Pulse of European Banking’, the firm has analysed merger and acquisition opportunities amongst the major European banks in terms of investor return, net value generated and the risk of cross-border integration.
According to the study, an integration between the French banks Société Générale and Crédit Agricole would have the best comparable parameters, with the lowest integration risk compared to the other possible combinations.
In addition, the firm also includes a Spanish bank in another possible merger: BBVA with Barclays, also with high return on investment and low risk.
Overall, Alvarez & Marsal argues Société Générale and BBVA would be the banks that would generate the highest ROI for several potential buyers, while BBVA and ING would present the lowest integration risk with several banks.
On the other hand, A&M highlights in its report that European banks show a significant deterioration in their profitability in the year of the pandemic, with a ROE at the end of 2020 of 1.82%. This represents a reduction of 358 basis points and also entails stock market valuations below their book values.
In addition, teleworking and staff reductions coupled with branch closures would have caused the industry’s efficiency ratio to remain stable at around 65%, despite the fall in revenues.
As for solvency levels, the firm believes they are “solid,” with a CET1 ‘fully loaded’ capital ratio of 14.2% in global terms at the end of the last financial year. A&M recalls this ratio will be tested in 2021 by banking supervisors in their stress tests.