ROCAN Rechtsanwälte PartG mbB | Luisa Schenke

European Union

After years of relative calm, Europe’s banking sector is entering a new wave of consolidation. M&A activity is picking up pace, with up to 40 mergers expected across the continent in just the next six months, according to Ronan O’Kelly, Head of M&A Europe at Oliver Wyman. In short: deal fever is back (at least in the banking sector).

But this upswing is not just the result of improved market conditions – it is also becoming a battleground for political agendas and regulatory power struggles.

What is driving the trend

Many market observers believe that the end of the zero-interest-rate era is a key factor for more consolidation in the banking sector. Following the European Central Bank’s (ECB) rate hikes, traditional interest-based business is reported to have become profitable again, significantly boosting earnings. With substantial excess capital available and M&A deals said to offer double the returns on investments compared to stock buybacks, companies are increasingly directing profits toward acquisitions.

At the same time, banks are widely perceived to be under growing pressure to transform. Investment in technology, cybersecurity, and modern customer platforms are broadly regarded as essential. For many, scale is viewed as becoming a matter of survival. Mergers are commonly seen as a way to cut duplicate costs, unlock synergies (across headquarters, branch networks, and IT systems), and stabilize margins.

Notably, the regulatory tone also appears to be shifting. European supervisory authorities seem to have softened their stance on banking mergers in recent years.

Why EU-regulators are becoming more merger-friendly

After years of crisis-driven underperformance and regulatory constraints, European banks have regained stability. As a result, where caution once prevailed, consolidation is now viewed as a legitimate means to strengthen the banking system’s resilience.

At EU level, a growing political consensus appears to be taking shape: Europe is seen to require larger, pan-European banking groups to stay competitive on the global stage – especially against American and Chinese players. Notably, JPMorgan alone is worth as much as the Eurozone’s eight largest banks combined. The creation of European banking champions is now being actively encouraged – not just in speeches by ECB President Christine Lagarde. Ultimately, it is becoming increasingly clear that such players are necessary to finance important future expenditures, especially defense spending amid rising geopolitical tensions.

Merger control: a political minefield

Just as the EU seems ready to embrace bank mergers more positively, national governments are pushing back. While the EU seeks to deepen the Banking Union and Capital Markets Union, some member states perceive a threat to their sovereignty – particularly in the sensitive financial sector. The instinct to “protect” strategic assets (and finance capabilities for national undertakings) may be understandable from a national perspective, but from an EU law standpoint, it risks fragmenting the single market.

A notable example: Italy’s antitrust authority sought to review the UniCredit/Banco BPM deal, but the European Commission refused to refer the deal. Under Article 9(3) of the EU Merger Regulation (EUMR), the Commission may refer a case to a Member State if the competitive effects are limited to markets within that state. In this case, however, it saw no compelling reason to do so. The Commission underlined its strong interest in safeguarding competition in key sectors like banking and insurance, which it considers crucial for the economic development of the Capital Market Union and Savings and Investment Union. Furthermore, the Commission regarded itself better placed to assess the case due to its deep expertise in assessing complex banking markets.

Italy responded by invoking its “Golden Power” law, originally intended to block foreign takeovers threatening national security. Although the Commission had approved the deal, Rome issued a decision in April 2025 imposing additional conditions: e.g., banning BPM’s asset manager from selling Italian bonds, and requiring UniCredit to exit Russia within nine months. Failure to comply with the additional conditions could lead to multibillion-euro fines.

The problem: Article 21(4) EUMR allows national protective measures, but only if they are proportionate, non-discriminatory, and consistent with EU law. The Commission now questions whether Italy’s measures meet these standards and issued a preliminary assessment (see press release).

A similar conflict occurred in Spain. Even though Spain’s competition authority had approved BBVA’s bid for Catalonia’s Sabadell, the Spanish government intervened and only gave approval on the condition that Sabadell would maintain operational independence for three years.

In response, the Commission has launched infringement proceedings against Spain on July 17, 2025 (see press release). While the case is not named, Brussels argues Spain’s laws grant the government excessive control over bank mergers, potentially infringing on the ECB’s and national supervisors’ exclusive powers under EU banking law. The Commission also believes Spain’s executive discretion restricts the freedom of establishment and capital movement.

Germany presents another example. The German government publicly opposed UniCredit’s investment in Commerzbank, highlighting its systemic importance and key role in financing the country’s Mittelstand, while reaffirming the federal government’s commitment to maintaining a “strong and independent” national institution. Yet in April 2025, the German Federal Cartel Office (FCO) approved UniCredit’s acquisition of a stake of up to 29.9% in Commerzbank, raising no competition concerns. On the contrary, the FCO’s president Andreas Mundt stated at a press conference that a full takeover would unlikely trigger a different assessment.

After UniCredit officially abandoned its plans to acquire Banco BPM on July 22, 2025 due to the political interference described above, Commerzbank has taken on even greater strategic importance for the group. It remains to be seen whether UniCredit’s renewed focus on Commerzbank will ultimately lead to a full takeover.

Market definitions

Even beyond politics, merger control in the banking sector remains a complex matter, especially when it comes to defining relevant markets.

Banks offer many different services. Regulators like the FCO or the Commission often break down banking markets into narrow segments, e.g.:

  • Retail banking, which covers general banking services such as deposits and loans. These are further subdivided based on duration, purpose, customer type, and other specific terms. Retail banking also includes credit card issuing, asset management in a broad sense (e.g. custody services, securities trading, investment funds), and insurance brokerage.
  • Corporate banking, which comprises services like deposits, loans, real estate financing, credit card issuing and acquiring, asset management, leasing, factoring, investment banking (including M&A, advisory services, equity and bond issuance, IPOs), and occupational pension schemes.

When banks operate in the same cities or regions, market shares accumulate fast. Regulators now even use postal-code-level data to detect overlaps. In the CaixaBank/Bankia merger such granular analysis – which also included identifying branch overlaps within a 1.5 km radius – proved critical: Spain’s competition authority flagged 86 affected postal codes and imposed remedies in 21 areas where the merged entity would have had a monopoly.

Conclusion

Every deal now requires navigating a complex legal, regulatory, and political landscape. For investors and stakeholders alike, success in this environment depends on a clear understanding of market definitions, regulatory thresholds and the politics behind the deals.

This article first appeared on Lexology | Source