Given the CYBG-Virgin deal, will we see more consolidation in the banking sector?
Yes – Graham Spooner is an investment research analyst at the Share Centre.
Investor appetite for the sector has increased over the last year. There is a new breed of challenger bank that looks set to take business away from the long established high street names.
Technology has changed the way we bank, and the challengers are not associated with misdeeds of the past, which should help enable them to grow market share.
However, it remains a crowded market and the well-known names have been reacting to the new environment.
Some of the new challenger banks appear to have decided that making it on their own will be too difficult or costly, hence Aldermore falling into the arms of a South African bank, and now Virgin Money agreeing to be taken over by CYBG.
Will there be more consolidation in the sector? We said yes before the Virgin news, and continue to take the view that potential cost savings will sway chief executives and lead to more M&A activity.
No – Julian van Kan is head of financial institutions group for EMEA at MUFG.
People have short memories. For the past decade, banks have been heavily admonished and subsequently regulated for being “too big to fail”. A banking consolidation cycle would take us back to square one: a monopolistic sector with little open competition.
Challenger banks have proven themselves to be relevant to todays market, and it would be a shame to see more uniform consolidation in this area. Banking mergers, particularly big European cross-border deals, such as the rumoured Barclays-Standard Chartered tie-up, fundamentally do not address the relevance challenge.
There is significant divergence in banking models currently: customer or shareholder-led, and home market-focused versus cross-border-focused.
Name a potential merger between two big banking groups and I highly doubt it would increase the significance of either group to a wider audience. This is particularly acute in the absence of deeper European capital markets union. And, as many may need to be reminded, mergers for the sake of saving one organisation often lead to far greater problems down the road.