Where is Europe’s megabank?

Someone asked me the other day whether banking mergers in Europe would be a big trend or just wishful thinking. I guess this is because of the imminent acquisition of Commerzbank by Unicredit. Their real point was that the major European banks will need to merge to survive. After all, if American banks can spend three times more on tech than EU banks on technology, surely EU banks will need to merge to survive?

Well, this is a subject I have researched many times and, truth be told, there’s no way there could ever be a super-sized EU bank. You might point to Santander, BBVA, Deutsche Bank, HSBC or more, but none of them are pan-EU. They are domestic, national banks with domestic, national affiliates. As someone who live in Poland and banks will Millennium, a subsidiary of the Portuguese Millennium Bank, is a good example. It’s a big bank in Poland, but only because it opened 35 years ago when Poland left the cold war battles with Russia.

Another case in point might be Santander who, through acquisitions, has grown to be one of the biggest UK banks.  Yes, they are big in the UK, but elsewhere not so much so.

HSBC, Deutsche and others in context moved from being global, universal banks to being global corporate banks. Retail operations were sold off and operations shrunk to core procedures and processing. Their aim is to provide global processing for corporates, but forget retailing.

So why isn’t Europe seeing a lot banking consolidation? Culture, language, structure, operations and more. It’s mainly about the fact that it is too darned difficult. Now, you might think that due to SEPA (the Single European Payments Area), PSD2 (soon to be PSD3), MiFID2 (MiFID3 soon) and more, that Europe would have promoted the idea of a pan-European super bank emerging to compete with the likes of ICBC and JPMC. Nope. Think about it. The big Chinese and American banks deal with a single structure – albeit with local nuances – that has a single language and therefore a singular audience. With that, the bigger you are, the better you are.

Then, bring this back to Europe, as discussed yesterday, and try and see what happens if you bring a group of French, German, Spanish and Italian folks into the same room

Heaven:

• The police are British
• The cooks are French
• The engineers are German
• The administrators are Swiss
• The lovers are Italian

Hell:

• The police are German
• The cooks are British
• The engineers are Italian
• The administrators are French
• The lovers are Swiss

I guess that’s why we will never see a pan-European mega-bank …

But then Revolut is here and available in most European countries, including Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, and the United Kingdom.

OK, it is not a corporate, multinational bank (today) but oh, the times they are a-changing.

But then the critical difference between Revolut and traditional banks is that the latter are focused upon traditional structures; the latter want to offer branch-based banking that supports corporates and consumers; they are not focused upon just being a digital platform the allows money to work. Revolut does the latter and that’s why it’s one of the faster growing financial platforms in Europe, in a similar way to NuBank in the South Americas.

Revolut’s description:

Revolut is an app-based banking alternative. Revolut brings freedom to your money with our multi-currency card and mobile app. With Revolut you can now send, spend, and exchange money instantly with intuitive ease.

NuBank’s:

Nu is the world's largest digital banking platform outside of Asia, serving over 105 million customers across Brazil, Mexico, and Colombia.

HSBC?

HSBC Holdings plc (Chinese: 滙豐; acronym from its founding member The Hongkong and Shanghai Banking Corporation) is a British universal bank and financial services group headquartered in London, England, with historical and business links to East Asia and a multinational footprint.

Returning to the question therefore around whether consolidation through M&A in European banking is inevitable or wishful, the answer is probably that you’ve missed the boat. It’s already done and dusted by digital, and the wishful thinking is creating a new EU bank through a merger versus a platform.