EU recovery plan will stimulate mergers between European banks – Santander

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The European leaders’ agreement on a massive stimulus plan for their coronavirus battered economies should help kick-start cross-border consolidation in Europe and complete the European banking union, Santander Chairman Ana Botin said.

“What was agreed yesterday (in the early hours of Tuesday) means the opportunity and the probability that we do get a banking union and cross-border consolidation is much higher,” Botin told Reuters in a Zoom call.

“It will require changes, but I think those changes are much more likely today than they were yesterday,” Ana Botin said.

Santander is the euro zone’s second-biggest lender in terms of market value.

Remarks by Botin echoed comments from European Central Bank vice-president Luis de Guindos, who on Monday said that he expected banks to engage in both national and cross-border consolidation within weeks or months.

Consolidation is seen as inevitable among banks in the euro zone to gain scale, but low valuations and different legal frameworks around countries are hampering any such transactions.

Profitability across the euro zone bank sector is low and an economic recession in the region is expected to further dampen the banks’ prospects, partly due to also higher loan-loss provisions related to the impact from COVID-19 outbreak.

“What has happened yesterday on the agreement in Europe is a clear stepping stone for the banking union in Europe. And banking union and free transfer of euros across countries is a pre-requisite for cross-border euro mergers and consolidation,” Botin said.

“I do think it’s the time. I do think European banks need scale,” Botin said, adding that for now Santander was not interested in taking part.

“As of today, no, with the current rules, no. When the rules change who knows. Even then I think there are others who are more likely to be ahead of us,” she said.

The agreement between EU leaders paved the way for the European Commission to raise billions of euros on capital markets on behalf of all 27 states, an unprecedented act of solidarity in almost seven decades of European integration.

“It is really important for Europe, I think it is a game changer, this is really a turn in the road, in the right direction,” Botin said, adding that this “will be seen in time as key step in the construction of Europe.”

Botin also that the agreement had diminished and averted the chances a sovereign risk and fragmentation problem in Europe and that the person, the country, who had taken the lead to make this possible was (Chancellor Angela) Merkel and Germany.

“We could have hoped for something bigger but not for something better,” she said.

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