Britain’s banks should take part in Macron’s grand restructuring of European finance

sunak macron
The UK should prepare to grab a slice of Macron's mega-merger plan - KIN CHEUNG/POOL/AFP

It could prove to be the last major industrial project of his presidency. France’s Emmanuel Macron has raised the possibility of mega-mergers to consolidate Europe’s banking industry. He wants to create a series of world-beating giants, citing the luxury goods conglomerate LVMH as a template.

If there is to be a consolidation of the European finance industry, then surely the major British banks should be taking part in that?

After all, we have some of the biggest banks in Europe, and by far the most vibrant fintech industry. If a wave of deals is about to get started, the major UK players need to be ready to take part – or risk being left on the sidelines as Macron engineers the creation of a eurozone mega-bank.

Whatever his other faults, President Macron has never lacked ambition. He has attempted to reform the moribund French economy, reshape the European Union and lead the transition towards net zero, while forging an ambitious industrial strategy for the Continent.

He thinks big.

With time running out on his presidency, due to come to an end in 2027, he has now set his sights on one more major project: reshaping the finance industry.

In an interview with Bloomberg this week, he argued that governments should allow, and perhaps even encourage, a series of mega-mergers between the Continent’s leading banks to create one or two global champions.

“Dealing as Europeans means you need consolidation as Europeans,” argued Macron, citing the streamlining of the luxury goods industry under LVMH’s Bernard Arnault as an example of how European companies can be strengthened by putting lots of smaller brands under one giant corporate structure.

A deal between France’s Société Générale and Spain’s Santander was one he suggested would work. Whereas in the past, it might have been vetoed by national regulators and governments, not least in Paris, the moment has arrived, Macron argued, to make it happen.

In fairness, the French president has a point. Despite the creation of the single market, Europe still has a very fragmented financial system, with a series of national banks. It has not produced anything to match the scale and strength of JP Morgan Chase or Bank of America in the US, or indeed of the Bank of China.

A stronger banking industry, with greater lending capacity, would help strengthen the economy, make it easier for companies to raise capital, and distribute money to where it was needed around the Continent.

Shouldn’t the UK banks be getting ready to take part in that? Britain has some of the major banks on the Continent. Of the 11 largest banks in Europe, measured by total assets, three are British, led by HSBC, and followed by Barclays and Lloyds. It is not hard to envisage some of the possible combinations that could emerge.

Barclays and BNP Paribas might well make for a formidable combination. Lloyds and Santander might fit well together, given that both have strong retail banks, and Santander is already a major player in the British market.

Deutsche Bank might well make an interesting morsel for HSBC. The German bank is a fraction of the size of HSBC – its market capitalisation is only €31bn (£27bn), compared to £129bn for HSBC – but they both have a strong presence in commercial banking.

Combining the expertise and the networks of the two banks might well create a genuine global competitor to the American and Chinese giants.

Any of those deals would present formidable challenges. And yet, 15 years on from the financial crisis, all of the UK banks are in far better financial shape than they have been for a generation or more.

Right now, the British market is stagnant, and offers few opportunities by itself. If they don’t expand into new markets, it will be hard to keep growing; even worse, a mega-bank formed on the Continent will eventually turn its eyes towards the UK.

Of course, bank mergers have a bad reputation in Europe. The collapse of Royal Bank of Scotland in the financial crisis of 2008 and 2009 after a string of over-ambitious acquisitions has stayed in the memory as a warning against trying to take control of a rival.

That said, the success of UBS’s merger with Credit Suisse, even if it only happened when the Swiss government put a gun to the heads of both sides, has shown that it is possible to make it work.

Shares in UBS have risen by 58pc over the last 12 months as the combination of the two has proven surprisingly successful.

Meanwhile the growing power of JP Morgan has demonstrated that scale still works, and hoovering up rivals such as Silicon Valley Bank during the mini-crisis of last year has shown that it can still extend its dominance of the American market. Get it right, and merging banks can still be a very easy way for everyone to make money.

Sure, Macron is certainly thinking of all EU combinations. And no doubt he is hoping for a French-led European champion to emerge, led by a French banker, and with its headquarters in Paris.

If he was left in control, SocGen would take over Santander, while BNP Paribas would take over Deutsche Bank, and perhaps one of the Spanish or Italian banks as well.

A British bid for any of the major players on the Continent might well be vetoed on the grounds that a merger could only be allowed between banks that are already located within the eurozone. We will see in due course.

One point is certain, however. Macron may have deliberately started the process, but he will find it hard to control what happens next, or to remain completely in the driving seat.

If governments are encouraging a wave of consolidation, the major UK banks should be ready to take part – or risk getting left behind.