Author: JanMusschoot

The consolidation of Europe’s banks is almost over

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There’s a consensus that European banks need to consolidate.

For example, in the report for the European Parliament that I talked about in the previous episode, the authors write that if UniCredit’s takeover of Commerzbank succeeds, quote: “it could plausibly mark the start of a new cycle of cross-border consolidation”.

However, banks have never stopped consolidating. You just need to look at the data.

If you do that, you’ll see that the consolidation of Europe’s banks is almost over…

So, how much concentration is there in the banking market?

The European Central Bank publishes a statistic called Shares of the 5 largest credit institutions in total assets. (Where credit institution is a fancy term for banks.) 

This metric looks at what percentage of the total market, measured by the assets on their balance sheets, is controlled by the five largest banks.

In most of the countries in the EU, the top five control more than 70% of the national banking system.

And this concentration has either been stable or rising. 

If you look at the big four EU countries, the largest banks in Spain and Italy have significantly increased their market share over the past 10 years.

In France, the concentration has remained constant at about 47 percent.

This may be surprising if you listened to the previous episode, where I told you that 5 large French banks control most of the French market.

The explanation is that banking groups like Crédit Agricole or BPCE are made up of lots of smaller banks that typically only operate in a certain region.

If the total assets of the French top 5 would be based on the consolidated groups, the ECB’s figure would show a very concentrated market in France.

The same is true in Germany. If you’d take the (almost) 700 cooperative banks of the VR group together, the top 5 concentration would go up a lot.

So the narrative of a fragmented market that hasn’t consolidated, already falls apart if you look at the big countries.

But the rising concentration is most apparent if you look outside of the euro area.

Let’s take a look at Central and Eastern Europe.

In Poland, Romania, Hungary and Bulgaria, some of Europe’s fastest growing economies, the concentration has gone up a lot.

This is mostly due to large banks buying up smaller competitors. 

Sometimes foreign banks left a country to focus elsewhere.

Sometimes they stayed and expanded their market share.

This is the cross-border consolidation that policy makers have been hoping for.

We could also look at some mid-sized economies in Northern and Western Europe.

For example, in the Netherlands, three Dutch banks basically form an oligopoly.

In Denmark and Sweden, the market has been pretty stable. 

But that’s gonna change: Nykredit, one of the top banks in Denmark, recently announced the acquisition of a domestic rival. 

And I can easily pick some smaller economies with banking systems that have become or remained very concentrated.

In Lithuania, Slovenia and Cyprus, the market isn’t big enough to support many profitable banks, so the concentration is very high.

In Greece, although it has a population of about 10 million, the entire market basically consists of 4 domestic banks.

That’s the picture at the national level.

We can also look at the largest banking groups in Europe. 

And here I’m gonna expand the scope beyond the European Union, and include countries like The United Kingdom and Switzerland.

In 2018, the German consulting firm ZEB published a report on the European banking market. In their report, they listed the 50 largest European banks at that time.

It is now seven years later. 

Since then, three major banks have disappeared because they were acquired by their competitors.

There was one in Spain and one in Italy, but by far the biggest was Credit Suisse, which was acquired by UBS when Credit Suisse was failing due to a bank run. 

I’m gonna talk about bank runs in a future episode, so please subscribe if you don’t want to miss that.

Right now, there are three more active takeover bids for top 50 banks. 

The most famous one is the acquisition of Germany’s Commerzbank by UniCredit.

Back in Italy, UniCredit also wants to buy Banco BPM.

And if BBVA manages to acquire Sabadell, the Spanish banking market will resemble the Dutch one, dominated by three domestic giants.

So it’s just not true that M&A was dead before the bid for Commerzbank.

Finally, I wanna comment on the first chart in the report from the Bruegel guys for the European Parliament, that I talked about in the previous episode.

That chart showed M&A deals measured by total assets of the banks that were acquired. 

Almost by definition, this method has a bias for so-called universal banks. 

So maybe I should explain what universal banks are. 

Universal here does not mean global banks or banks that are active in lots of different countries. 

No, a universal bank is a bank that offers its services to a range of different clients, from retail to corporates. 

These banks offer mortgages to home buyers. 

And they also make loans to businesses.

These universal banks have many clients, which means they have many loans and deposits.

So overviews of the largest banks by assets almost always just show universal banks.

But by looking only at these large banks, you miss niche players that are specialized in a certain segment of the market.

For example, there has been consolidation among custodian banks.

I think maybe three people on the planet care about securities services, so I’m gonna skip those custodian banks.

But there have also been lots of deals between private banks. 

Private banks work for rich families, offering wealth management services. 

UBS buying Credit Suisse was of course the largest deal in private banking.

But there’s been plenty of activity in the private banking space in countries like Belgium and the Netherlands.

In Germany, BNP Paribas and ABN Amro have recently increased their footprint. 

But it’s not just large banks that are expanding.

Swiss UBP has been on a buying spree lately, taking over the private banking activities of larger groups in a number of countries. 

So taking all of this together – the rising concentration at the national level, the mergers of large banks, and the consolidation among specialized banks – the narrative that a new wave of consolidation of European banks could kick off is totally false.

Out of the spotlight, banks have never stopped consolidating.

They just did it gradually.

And if you haven’t paid attention during the past decade, or if you’ve only watched the large banks in France and Germany, Europe’s banking concentration may suddenly seem quite different.

OK, that’s it for this episode.

Thanks for making it all the way till the end, and till next time 🙂

Why are there no pan-European banks? Comments on the European banking system, based on a report for the European Parliament

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A report for the European Parliament shows that banking remains dominated by national champions, especially in the large countries. But the authors don’t identify the real culprits behind the failing banking union. Let’s find out what’s really holding back the formation of pan-European banks in another episode of the Finrestra podcast.

This episode is based on a report by three authors at Bruegel, a think tank in Brussels: Giulia Gotti, Connor McCaffrey, and Nicolas Véron. Their report is titled Banking Union and the Long Wait for Cross-Border Integration. I’m going to put a link in the description of this podcast if you want to read the whole report. They cover a lot more than I’m going to talk about. For example, they study the ownership of government bonds at European banks, which was quite relevant during the banking crisis [I meant the European debt crisis] in 2011 or 2012. But it’s something that doesn’t interest me as much. Instead, I want to use their report to talk about the structure of banks in the eurozone and why there aren’t more banks active across Europe, not just in their home countries.

One of the interesting figures in the report—and there are several—looks at the total banking assets in each country within what is called the banking union. Just to be clear, the banking union includes countries that have single supervisory oversight of their larger banks by the European Central Bank (ECB). The ECB is responsible for the euro area, so the banking union covers all 20 countries using the euro, plus Bulgaria. Bulgaria is included because its currency is pegged to the euro, effectively having a fixed exchange rate, and many of its banks are controlled by banks in the eurozone. This makes Bulgaria’s inclusion in the banking union reasonable.

If you look at banking assets by country, you’ll see that the countries with the largest banking sectors are France, Germany, Italy, Spain, and the Netherlands. These are also the five biggest countries in the euro area, both economically and by population, so this makes sense.

However, I do have a comment on the data used in the report. They use data from The Banker, a publication. From my past work on financial geography, I know that datasets on European banks can vary in how they handle Luxembourg. In this report, Luxembourg’s banking assets are listed as about half a trillion euros, but in reality, they are closer to one trillion. This discrepancy is significant. While this might not affect all countries, it’s something to keep in mind. That said, because the authors used a single dataset, the data quality issues should be consistent across countries, allowing us to identify trends and proportions in Europe.

Aside from the fact that France, Germany, Italy, Spain, and the Netherlands have the largest banking systems, the report also highlights that these countries’ banking systems are dominated by large domestic players. Germany is an exception because it also has many cooperative banks like Volksbanken, Raiffeisenbanken, and Sparkassen, which are typically local banks alongside the bigger ones.

I’ll come back to the smaller countries in the banking union shortly. Another interesting point in the report is the distribution of assets across the 10 largest banking groups in the eurozone. Remarkably, five of the 10 biggest banks in the eurozone are French. The best-known French banks outside of France are BNP Paribas, Crédit Agricole, and Société Générale. These banks also have significant activities outside France. The other two French banks in the top 10 are BPCE and Crédit Mutuel, which are groups of smaller cooperative banks mainly active within France. Alongside these French giants, the top 10 includes Santander from Spain, ING from the Netherlands, Deutsche Bank from Germany, and two Italian banks: Intesa Sanpaolo and UniCredit.

Looking at domestic versus international assets, only three of the 10 largest banks in the report have more than half their assets outside their home countries. Santander is the biggest, with significant activities in the Americas (Brazil, Chile, and the U.S.), the U.K., and Poland. ING, based in the Netherlands, is also active in Germany, Belgium, Poland, and other countries. UniCredit, while second-largest in Italy after Intesa Sanpaolo, has substantial operations in Germany and several Eastern European countries. If its bid for Commerzbank succeeds, Germany could account for more than half of UniCredit’s activities.

Despite these examples, the report’s analysis has some limitations. For instance, it attributes all of Deutsche Bank’s U.K. branches to Germany, which might not fully reflect its international revenue sources. Revenue, not assets alone, shows where banks truly operate. For example, while about 80–90% of Deutsche Bank’s assets are attributed to Germany, only about a third of its revenue comes from Germany. The rest is generated in markets like the U.S. and the U.K.

This discrepancy shows why it’s not enough to look at the top 10 banks to understand the European banking system. For example, in France, the big five dominate over 90% of the market. In Germany, the picture is more fragmented, with large domestic banks, Landesbanken (state-owned regional banks), and cooperative banks. Less than 10% of the German market is controlled by foreign banks, mainly UniCredit and ING, while about 15% is controlled by non-EU banks, such as JP Morgan and Goldman Sachs, due to Frankfurt’s role as an international financial center.

In Italy, the market is dominated by Intesa Sanpaolo and UniCredit, with mid-sized banks like BPER and BPM also playing a role. Foreign banks, especially French ones like BNP Paribas and Crédit Agricole, account for more than 10% of Italy’s market. Spain, on the other hand, is dominated by domestic players like Santander, CaixaBank, and BBVA. The Netherlands has a similar structure, with over 85% of the market controlled by ING, ABN Amro, and Rabobank.

Outside the “big five,” the dominance of national champions is less evident. For example, in Belgium, domestic players like KBC and Belfius control less than 50% of the market. The rest is dominated by foreign banks like BNP Paribas Fortis and ING. In smaller eurozone countries, foreign banks play an even bigger role. In the Baltics (Lithuania, Latvia, and Estonia), Swedish banks like Swedbank and SEB dominate. In Central and Eastern Europe, UniCredit and Intesa Sanpaolo are significant, along with Austrian banks like Erste Group and Raiffeisen Bank International, Hungarian OTP, and Belgian KBC.

This is why you cannot just look at the 10 biggest banks, and also, it’s not a good idea to analyze European banks by only looking at the eurozone or the banking union. If you expand your scope and look at the entirety of the EU, you’ll notice that outside of the big five euro countries, the banking landscape is actually quite diversified and internationalized, with a lot of foreign ownership.

Foreign owned banks in Europe

The largest economy outside of the banking union is Poland. Although the largest two banks in Poland are domestic, a significant portion of the banking system is foreign-owned. For example, Santander is present there, along with German Commerzbank and French BNP Paribas, which are significant players in the Polish banking market. As always, when you look at EU data, you should be aware that the EU is much more than just the eurozone or the big four or big five countries.

Another caveat is the Nordic region. Sweden and Denmark still have their own currencies; they don’t use the euro. In these two countries, Finnish-based Nordea is a significant player. In the Nordic region, you see foreign ownership, which is not as common in countries like France and Spain.

Another deplorable issue in EU research is the lack of consideration for Brexit. The UK is no longer in the EU, but it would have been instructive to see how diversified or internationalized the banks are in the UK. Retail banking in the UK is primarily British, with some exceptions like Santander. However, the banking system as a whole is very internationalized. London hosts many big American investment banks and almost every significant global bank, a presence not found even in Frankfurt. It would be interesting to contrast the banking union with a country like the United Kingdom.

Now, moving on to the question: Are we making progress towards a more integrated banking market in the banking union? When I say “we,” I mean the European Union or policymakers in Brussels. This brings me to the first chart in the European Parliament report, which is also the most damning. It shows euro area bank mergers and acquisitions based on the total assets of the banks acquired. The chart reveals two distinct periods: the late 1990s up to the banking crisis of 2008, and the period after 2008.

In the first period, there was a lot of M&A activity, both domestic and international. For example, the EU’s biggest bank, BNP Paribas, emerged from the merger of French banks BNP and Paribas. Italy’s largest bank, Intesa Sanpaolo, resulted from the merger between Intesa and Sanpaolo. Another major cross-border merger was BNP Paribas acquiring Fortis, which made BNP Paribas Fortis the largest bank in Belgium. Since 2008, however, M&A activity has mostly been limited to domestic consolidation. Examples include CaixaBank merging with Bankia in Spain and Intesa Sanpaolo acquiring UBI Banca in Italy.

The decline in cross-border M&A has obvious reasons. If you’re already active in a market, acquiring a competitor makes sense to reduce costs. Banks have also focused on core activities and left certain countries or activities to competitors. Another factor is regulation. The 1990s and early 2000s were lightly regulated, which encouraged M&A. After the financial crisis, regulations became much stricter, reducing M&A activity.

One reason identified in the report for low M&A activity is low stock prices. However, the authors don’t explore the root causes of these low prices. The weak EU economy, low demand for loans, and bad loans on balance sheets contributed, but I argue that national and EU policymakers share the blame. The eurozone could have achieved much higher growth, which would have improved bank stock prices. Additionally, the ECB’s monetary policy also played a role. For a long time, ECB interest rates were zero or negative. When inflation surged and the ECB finally raised rates, banking stocks exploded. If the ECB had raised rates earlier, banks would have been more profitable, leading to more M&A activity. Instead, the ECB and others gaslight banks by asking why there isn’t more integration and consolidation.

Another issue is the ownership structure of European banks. Cooperative banks like BPCE and Crédit Mutuel in France, and Rabobank in the Netherlands, are not listed on the stock exchange. Instead, their shares are owned by millions of cooperative retail clients. These clients are not interested in high returns, so cooperative banks focus on domestic markets rather than foreign expansion. Moreover, cooperative banks are harder to acquire because decisions require agreement from millions of owners.

Government ownership is another problem. Many banks bailed out during the financial crisis remain state-owned. For example, Belfius in Belgium is a remnant of Dexia. Despite over 15 years since the crisis, the Belgian government still owns Belfius. The same is true for Commerzbank in Germany and ABN Amro in the Netherlands. When foreign banks attempt acquisitions, politicians often block them, citing national interests. This economic nationalism undermines the EU’s goal of a single banking market.

In conclusion, the EU’s banking union faces significant challenges. While the European Parliament report provides valuable insights, addressing root causes like low profitability and excessive government ownership is crucial. Privatizing government-owned banks and letting the market play out could help. Thanks for listening! My good intention for 2025 is to make the podcast weekly. I’ll upload episodes to Spotify and podcast platforms first, followed by YouTube with a few visuals. YouTube won’t have animations, as weekly episodes might be less polished. However, I’ll create fully scripted videos occasionally. Subscribe if you enjoyed this episode. See you next time!

Finrestra on YouTube: where do we stand at the beginning of 2025?

As of 1 January 2025, the Finrestra YouTube channel has 152,701 views and 770 subscribers.

I’m planning to do weekly episodes of the podcast again. They’ll be posted on Spotify first, and about two weeks later also on YouTube with some pictures.

On top of the podcast, I’m preparing longer videos on Russia’s frozen assets at Euroclear, deep dives into banks like SocGen and UniCredit, how a European DOGE could save us a lot of money, several ways to look at Europe’s banking centers, and my description of the financial system.

Americans in Copenhagen

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Hello and welcome to another episode of the Finrestra podcast! I’m Jan Musschoot.

Summer is almost over, but I wanna start September with some economic thoughts inspired by my vacation in Denmark.

One of the things I noticed during my week in Copenhagen was the vast number of American tourists. For example, I went on a guided walking tour through the city center, and almost everyone in the group was American, and more specifically Californian. In restaurants, we frequently sat next to Americans. It’s remarkable when you think about it—flying from the US to Copenhagen, and especially from the West Coast, takes about ten hours. Meanwhile, there are like 500 million potential tourists in Europe who are much closer. For me, it was just a one hour flight.

So why are there so many Americans in Copenhagen relative to Europeans? Although Copenhagen is a beautiful city, Denmark is quite expensive, so many European tourists prefer cheaper options. On the other hand, I know there are also lots of Americans in places like Portugal, France and Italy. 

So going on vacation in Europe must be quite cheap to Americans. And the real question is:

Why are Americans richer than Europeans (on average)?

Strong dollar?

When you think about tourism, one obvious explanation is the exchange rate. A strong dollar against the euro means Americans can buy more euros, making Europe relatively cheaper. While this sounds like a reasonable explanation, the five-year exchange rate between the dollar and the euro doesn’t support this. There was a period in 2022 when the euro was weak, but today, the exchange rate is similar to pre-pandemic levels in 2019.

The US dollar was strong in 2022, but is back to 2019 levels (pre-pandemic)

So, this isn’t the main reason for the large number of American tourists. And if you’re thinking, hold on, Denmark isn’t in the eurozone and uses the Danish krone, the Danish National Bank keeps the exchange rate between the euro and the crown fixed. 

However, a strong dollar can influence tourism. The Japanese yen has weakened significantly compared to the dollar. I wouldn’t be surprised if more Americans are visiting Japan now because their dollars go much further there.

The US dollar is strong compared to the yen, making Japan cheap for American tourists

So, if the exchange rate isn’t the reason why Americans are richer, what is? Because regardless of the metric—whether it’s GDP per capita, purchasing power parity, or other indicators—Americans are indeed richer than Europeans on average.

Lower taxes

One major factor contributing to this wealth difference is higher deficits and lower taxes in the U.S.. In the U.S., government deficits have been high since the financial crisis of 2008, leading to a government debt-to-GDP ratio above 120%. In contrast, Denmark has a public debt ratio below 30%, thanks to high taxes and small deficits or even budget surpluses.

Government debt-to-GDP ratio for Denmark and the US. Source: IMF

While Denmark invests heavily in public infrastructure, one of the reasons why it’s such a nice place to visit, this spending is funded by taxes rather than debt. Meanwhile, in the U.S., people benefit from lower taxes, leading to higher incomes.

If Denmark borrowed more and ran budget deficits instead of surpluses, people would have more money to spend, save, or invest, benefiting the Danish and European economy. Lower taxes on income or consumption would give people more disposable income, allowing them to make investments, improve their homes, or travel more—just like many Americans do.

OK, that’s it for this week’s episode. I’ll do another one about Denmark later, because I haven’t said anything about its biggest company yet.

This episode is not sponsored by Danish Tourism, but if you visit Copenhagen, I highly recommend you buy a Copenhagen card.

European bank M&A: foreign expansion

Until recently, banks were selling foreign activities and merging with banks in their home country.

But I’ve noticed a renewed appetite for foreign expansion, especially in niche sectors like private banking:

Intesa Sanpaolo (Italy) buys majority stake in REYL (Switzerland) (2020)

Société Générale (France) buys LeasePlan (Netherlands) (2022)

Intesa Sanpaolo (Italy) buys Compagnie de Banque Privée Quilvest (Luxembourg) (2022)

Crédit Agricole (France) acquires Degroof Petercam (Belgium) (2023)

ABN AMRO (Netherlands) buys Hauck Aufhäuser Lampe (Germany) from China’s Fosun International for €730 million (2024)

BPCE (France) buys Nagelmackers (Belgium) from China’s Anbang (2024)

UniCredit (Italy) buys Aion Bank (Belgium) (2024)

Putin, Xi, Macron: how geopolitics shapes banking

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Summary:

The war in Ukraine, the rise of China, economic stagnation, and deteriorating relations with Africa are some of Europe’s most pressing geopolitical challenges.

In this episode, I talk about how banks reflect these geopolitical shifts.

Until the 2022 invasion of Ukraine, EU politicians and bankers treated Russia like any other Central and Eastern European country. Banks like UniCredit, Raiffeisen Bank International, Société Générale and others had significant subsidiaries in Russia, just as they had in e.g. the Czech Republic, Poland or Bulgaria.

Vice versa, Russian banks did business in Europe.

However, since the invasion, all but one Russian bank in the EU have been forced to shut down. In contrast, European banks continue to operate in Russia, to the chagrin of European and American officials.

As the visit of Xi Jinping to Hungary and Serbia demonstrates, good political relations and Chinese investment go hand in hand. Usually, the larger a country’s GDP, the more foreign banks it attracts. But although Hungary has a small economy, it has more Chinese banks than e.g. Austria, Sweden or Romania.

Macron talked about the need for cross-border consolidation of European banks. It’s easy to suspect ulterior motives, as BNP Paribas and Crédit Agricole are well placed to buy foreign competitors. But given the single European market, the dominance of local banks in the biggest euro countries doesn’t seem right.

Finally, as France’s military and political power in Africa wanes, French banks have been selling their African subsidiaries to local banks.

Future episodes will be about how to sell SocGen, the effect of higher interest rates, and the frozen Russian central bank assets at Euroclear.

Transcript/blog version:

Hello and welcome to another season of the Finrestra Podcast! 

I’ve been on hiatus for more than a year, but now I’m back with a lot of new content. But more on that at the end of this episode.

Today’s topic is the geopolitics of banking. I’m gonna talk about foreign banks in Europe and European banks in the rest of the world based on presidents Putin, Xi and Macron.

So first of all, Vladimir Putin. 

Since Putin’s invasion of Ukraine in 2022, a lot has changed for banks, both for Russian banks in Europe and for European banks in Russia. 

Almost immediately after the invasion, Russian banks in Europe were sanctioned or they suffered bank runs, and then the European regulators shut them down. 

Sberbank, the largest Russian bank, had a number of subsidiaries in Central Europe. It had bought these from Austrian Volksbank in 2012, at a time when Russia was still seen as a “normal” country. 

Sberbank Europe failed in the days after the invasion. Its operations in countries like Slovenia and Croatia were sold to local competitors.

Russia’s second largest bank, VTB, was also active in a couple of European countries before the war. Those operations are liquidated. 

But there were also some smaller Russian banks that you probably never heard of.

For example, the fourth largest bank on Cyprus was RCB, formerly known as Russian Commercial Bank. RCB doesn’t exist anymore.

In the Netherlands, there was Amsterdam Trade Bank. Despite the name, it was owned by Russian Alfa Bank. Amsterdam Trade Bank was sanctioned and then closed. 

Recently, in Luxembourg, the East-West United Bank was also closed down. East-West United Bank started as a Soviet bank during the Cold War, but its story ended thanks to Putin and the European sanctions.

Luxembourg is also the only country in the EU that still has an active Russian bank, Gazprombank. The EU is still buying gas from Russia, and the payments go through Gazprombank.

So that covers the Russian banks in the EU. 

If we look at the European banks in Russia, the story is quite different. 

Maybe I should start with the situation before the invasion. 

According to the Russian central bank, there were three European banks with significant operations in Russia: UniCredit, Raiffeisen Bank International and Société Générale.

Intesa Sanpaolo, OTP, ING and a couple of others also did business there. 

These are all banks who had expanded not just into Russia, but also into other former communist countries like Poland, the Czech Republic or Bulgaria.

Of these European banks, only Société Générale has fully left Russia. 

SocGen’s subsidiary Rosbank was sold to a Russian oligarch. 

The ECB and the Americans are trying to force banks like Raiffeisen to leave Russia. 

Janet Yellen has even threatened European banks with sanctions if they don’t comply. 

It’s funny that I didn’t read any warnings from Yellen to JPMorgan and Citibank, who also still operate in Moscow.

I guess it shows you who’s the boss in international politics and finance.

Geopolitics aside, you can question the wisdom of selling a profitable bank to a friend of Putin. 

But given the fate of the Russian banks in Europe, it’s strange that the Western ones can still do business in Russia.

Maybe it’s for propaganda: unlike the West, Russia respects the rule of law.

Or it could be because they’re useful for facilitating international payments. 

Or maybe Putin believes that European bankers can influence politics.

That would be pretty naive. 

In Europe, politicians are much more powerful than bankers (see Brexit).

It’s probably more likely that Putin thinks it’s good to retain some leverage over Western banks, because billions of euros of the Russian Central Bank are frozen in the EU.

Western politicians want to use that money for Ukraine, so Putin could retaliate by nationalizing their banks.

So that was the Putin chapter of this banking and geopolitics episode. 

Next, let’s move on to China. 

Xi Jinping, the Chinese president, was in Europe last month. 

He visited three countries: France, Hungary and Serbia. 

France is a logical destination: it’s the second largest economy in the EU, and the only one with nuclear weapons. 

But why did Xi go to Hungary and Serbia?

Well, obviously because they have the best political relations with China.

And those relations result in Chinese investment: from BYD factories in Hungary, mines in Serbia and the railway between Budapest and Belgrade.

What’s the geopolitical banking angle here?

If you’re a Chinese company that’s gonna invest abroad, why would you depend on Western banks?

It’s more convenient to deal with banks that you know, and who speak your language.

So there are two Chinese banks in Hungary: China Construction Bank and Bank of China. Bank of China even has a regional headquarters in Budapest. And it has a branch in Belgrade.

For comparison, there’s only one Chinese bank in countries like Austria, Sweden, Ireland and Romania, who have much larger economies than Hungary and especially Serbia.

And that’s remarkable, because there’s a strong correlation between a country’s GDP and the number of international banks that operate there.

But taking into account the geopolitics explains why Hungary and Serbia are outliers: Chinese banks are attracted by more than GDP alone.

Now with all of this talk about two small countries, I don’t want to give you the impression that Chinese banks only follow geopolitics. 

In fact, there are five major Chinese banks in Paris and Frankfurt, so the “law” of financial geography does apply. 

However, here’s a fun fact: the EU country with most Chinese banks is not France or Germany, but… tiny Luxembourg. 

That’s for another episode.

So that was the story of Xi Jinping and the Chinese banks in Europe. 

What about European banks in China? 

China’s economy relies almost entirely on its own domestic banks. 

European banks do more business in Hong Kong than in mainland China, a country with more than a billion people.

Compared to making cars or chips, banking is pretty simple. So the Chinese didn’t need foreign banks to learn how to run their banks.

Finally, I wanna talk about Emmanuel Macron, the French president.

Macron recently talked to Bloomberg about the need for cross-European banks. 

Personally, I don’t believe that should be a political target. 

The banking union is an obsession of people in Brussels. But it won’t help the economy of the EU. 

Although I have to say, I’m not surprised that Macron, a former Rothschild banker, is pushing for cross-border bank mergers in the EU. 

BNP Paribas and Crédit Agricole, the two largest banks in the EU, are French.

So they are in pole position to consolidate the industry in Europe.

But if we give Macron the benefit of the doubt, who doesn’t just want to create French banking empires, he actually does have a point.

In the big five euro countries, Germany, France, Italy, Spain and the Netherlands, the biggest banks are all domestic players. 

In contrast, Central and Eastern Europe is much closer to Macron’s pan-European vision. 

Their banking systems are a mix of foreign and domestic banks.

There are some financial and historical reasons for this difference between East and West.

A top bank in a small economy might cost a couple of billion euros, while a similar bank in a large country could cost an order of magnitude more.

So twenty years ago, Western banks bought banks in Eastern Europe, where GDP was much lower than it is today.

A similar expansion in the West would have been extremely capital intensive.

For example, Dutch ABN AMRO was valued at 71 billion euros when it was acquired in 2007.

The 1990s and 2000s were also a period of geopolitical optimism and openness to foreign investment.

But in 2024, politicians wouldn’t be happy that foreigners buy the local banking champions, even if they’re from other EU members.

Remember that this episode is about geopolitics. 

If any ‘Western’ banks have enough capital to buy big French banks, it’s the Americans or Canadians. 

And although the US and Canada are his NATO allies, there’s no way Macron would give JPMorgan permission to buy BNP Paribas.

In fact, when the journalist asked if Macron would agree with the sale of Société Générale, the French President said “Dealing as Europeans means you need consolidation as Europeans.” 

In the interview, they suggested Santander as the buyer. 

That wouldn’t be my suggestion. I’ll do another podcast episode about how I would sell SocGen.

OK, so that’s about France and French banks in Europe.

Finally I wanna comment on France and its banks in Africa. 

The French military recently ended its missions in the Sahel region. 

France isn’t popular on the African continent, where it’s viewed as the former colonizer. 

For example, the CFA franc in Western and Central Africa is controlled by Paris. 

Over the past years, the large French banks have sold most of their African subsidiaries to local banks. 

Although this is part of a global trend where banks focus on core markets, it’s hard not to think that geopolitics played a role in these decisions.

To wrap up the story of this episode, banks follow geopolitics. 

We’re seeing a fragmentation of a globalized world into power blocks, and banks follow these geopolitical shifts. 

Western European banks expanded into the former communist bloc after the Cold War, and they did well in Central and Eastern Europe. 

However, expansion into Russia has proven unsustainable since the invasion of Ukraine. 

In the future, European banks will probably operate more within politically friendly regions, similar to Chinese banks.

OK, that was it.

As I mentioned at the beginning, I want to pick up this podcast again. 

I have a lot in the pipeline. 

In the past, I started episodes with financial news. 

Now, I’ll talk less about current events and more about long term trends.

And especially about my own ideas about European banks, the ECB and the euro economy. 

Next episode will be about how to sell SocGen. 

Other episodes in the pipeline are about the effects of higher interest rates, Russian assets at Euroclear, and Lagarde vs Draghi.

Thanks for listening and till next time!

European bank M&A: domestic consolidation

European banks have been busy buying and selling foreign subsidiaries to increase their market share or to reduce complexity.

But the largest mergers and acquisitions have been between banks in the same country.

Belgium

Crelan buys AXA Bank for €691 million (2021)

Delen Private Bank buys Dierickx Leys Private Bank (2024)

Denmark

Nykredit Realkredit buys Spar Nord Bank for 24.7 billion DKK (2024)

France

BPCE buys Société Générale Equipment Finance from Société Générale for €1.1 billion (2024)

BNP Paribas (Cardif) buys Neuflize Vie (an insurance joint venture owned by ABN AMRO (60%) and AXA (40%)) (2024)

BNP Paribas buys AXA Investment Managers for €5.4 billion (2024)

Hungary

MKB Bank, Budapest Bank and Takarékbank merge into MBH Bank (2023)

Italy

Intesa Sanpaolo buys UBI Banca for €4.1 billion (2020)

BPER Banca buys Carige for a symbolic €1 (2022)

Spain

Caixabank buys Bankia for €4.3 billion (2021)

BBVA wants to buy Sabadell for €12.2 billion (2024)

Switzerland

UBS buys Credit Suisse for 3 billion Swiss francs (2023)

Julius Bär might buy EFG (2024) Update: deal was stopped over regulatory concerns

United Kingdom

HSBC buys Silicon Valley Bank UK for £1 (2023)

Nationwide buys Virgin Money for £2.9 billion (2024)

Barclays buys Tesco‘s retail bank for £600 million (2024)

NatWest buys Sainsbury’s Bank assets and liabilities (2024)

European exchanges, high earners, Imperial Chinese bonds, diamonds, renewable energy, more

European equity exchanges market share (source: Cboe)

Labour earnings by economic activity (Eurostat)

High earning bankers (EBA)