High noon on the high street

When CaixaBank and Bankia, its state-owned peer, announced on September 3rd that they were exploring a merger to create Spain’s biggest domestic lender, politicians, regulators and analysts offered unusually unanimous applause. If the deal goes through, it will boost consolidation within the Spanish market, hitherto highly fragmented beneath two international giants, Banco Santander and BBVA. It may also inspire similar deals elsewhere in the European Union.

If European banks want to catch up with American and Chinese ones, they must push for consolidation. Outside the EU, that logic might also explain why the two giants of Swiss banking, Credit Suisse and UBS, are reportedly discussing a merger. The idea has been explored in the past but abandoned because of antitrust worries.

European banks have a 6.7% return on capital on average, the lowest of any region, according to the Banker, a trade publication. American banks average 14.4%. Greater scale would also help them make the big investments in technology platforms and data analysis required to keep up with digitisation. As it is, parts of the region are massively overbanked, especially when compared with post offices, which are also stalwarts of the analogue era.

This extract is from our Graphic detail section.