Britain’s Barclays bank and ABN Amro, Netherlands largest bank, have announced their intention to merge.
Well, in the next couple of weeks we have to expect a number of analysis and comments that agree with this merger and that forecast a wave of similar mergers between banks in Europe. But let’s go back to business…
The competition within the banking industry in Europe has reached a new level in the last couple of years. In particular an increasing competition is driven by efficient foreign credit institutions that entered a particular national market as well as by existing so called non- and near banks, which extended their services. The rate of new entry varies across EU member states. Different entry strategies have been noticed in the past: Organic growth from a zero base, mergers and acquisitions, sideways moves into banking from organisations already linked with financial services, partnerships as well as joint ventures.
But it should be taken into account that differences exist between the separate business segments. DEUTSCHE BANK RESEARCH argues that “Retail markets are the most fragmented segments in EU financial services” (Deutsche Bank Research (2006), page 3). Opposite to this wholesale and money markets can be described as fully integrated.
What could be the reasons for those differences? Adverse to wholesale and money markets, retail financial services are based on local distribution channels; hence it is essential to get access to the customer as well as to achieve economies of scale. But the market share of major players in some domestic markets (United Kingdom, Sweden, Belgium, Netherlands) has already exceeds 70 percent, causing possible limitations for further in-market consolidation due to competition policy aspects. Hence it can be argued that a pan-European (retail) banking strategy could be more in the focus of some (retail) banks than before. Taking this into account, it is not surprising that two banks of even these countries have announced their attention to merge.
In this McKinsey Quarterly article from September 2005, Barclays CEO John S. Varley, who served as chief executive of the new group, discusses how the bank’s strong performance before he took over, in 2004, hid problems with its long-term health.