Brussels, 8 November 2005
Financial sector: Commission presents analysis of obstacles to cross-border mergers and acquisitions
The European Commission has presented to the Council of Economic and Finance Ministers (ECOFIN) its preliminary analysis of why there has been little cross-border consolidation so far in the EU financial sector. A market participant survey launched in April 2005 helped to identify the main obstacles. This analysis will now help to clarify what now needs to be done to tackle those obstacles.
Internal Market and Services Commissioner Charlie McCreevy said: “Cross-border consolidation in the financial sector is weak compared to other sectors. Despite the fundamental single market principles of free movement of capital and freedom of establishment, too many obstacles stand in the way of EU financial institutions that want to go cross-border. In many instances, the business case is simply not persuasive enough. Given the fierce global competition that is emerging, we cannot afford to have 25 medium-sized markets made up of second-division champions. We want to ensure that we extract the still-to–be-realised benefits of scale that the European market of 450 million people can offer. Therefore we must tackle the obstacles identified.”
In order to provide an explanation for the lack of cross-border consolidation, the Commission carried out a survey of market participants (IP/05/444). An overwhelming majority of respondents identified the lack of cross-border cost synergies as the major obstacle. Reasons put forward to explain this are threefold:
(a) a lack of integration of the internal market for retail financial products,
(b) the implications of diverging supervisory rules and practices for large cross-border financial groups, and
(c) impediments to corporate reorganisation on a pan-European basis.
Respondents also pointed at an unfavourable, and even disabling, environment for conducting cross-border transactions in the financial sector. They finally mentioned individual reluctance, from consumers and employees, towards non-domestic EU entities, which may discourage potential buyers.
The review of the supervisory approval process in the Banking Directive
Among the obstacles identified, market participants pointed at the supervisory approval process for the acquisition of qualifying shareholdings in banks (article 16 of the EU Banking Directive 2000/12/EC). The Commission has already started to work on possible improvements and streamlining of the current provisions, which were mandated by Economic and Finance Ministers in September 2004. In order to ensure cross-sectoral consistency, similar provisions in the insurance and securities sectors will also be examined.
The issue of low cross-border consolidation in the financial sector was
discussed at the informal meeting of Economics and Finance Ministers held in
Scheveningen on 10-11 September 2004. Ministers asked the Commission to study
possible obstacles to cross-border mergers and acquisitions in the financial
sector, arising not only from differing supervisory practices but also from
other, broader factors (MEMO/04/214).