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An important aspect of the recent shuffling is that nearly all the mergers have been domestic corporate marriages rather than cross-border European takeovers, which had been expected to proliferate when the euro was introduced in financial transactions in January. The main reason is efficiency: it is becoming obvious that domestic mergers offer big commercial banks a fast way to reduce expenses before they take the more uncharted jump outside national borders. "There's a preference to start with domestic mergers first because they offer the quickest way to reduce excess capacity by cutting jobs," says Hendrikus Blommestein, acting head of the financial markets division of the Organization for Economic Cooperation and Development in Paris. Jean-Pierre Danthine, a professor at the University of Lausanne, suggests an additional motive for the at-home trend in corporate behavior: domestic mergers have the advantage of eliminating local competition. "If there's excess capacity, you can reap a lot of benefits by buying your competitor and closing him down," he says.
A third reason for bulking up, according to Francesco Giavazzi, a professor at Milan's prestigious Bocconi business school, is that corporate size really does matter in banking, especially since the biggest banks are turning into one-stop service centers. According to Giavazzi, European banks are starting to follow another American model by replacing their traditional business of lending money with such financial services as asset management. "Being good is not good enough in asset management," Giavazzi says. "A bank has to be the best to attract customers, and that requires technology and highly trained personnel, which all cost money."
Size is so important that the prospect of creating a "champion of the European banking sector" prompted Banque Nationale de Paris to attempt to outmaneuver its rivals with a dramatic $37.6 billion offer to buy both Societe Generale and Paribas once their intended merger was announced, further jolting the French markets. If the BNP takeover ever goes through, it will create a bank with nearly $1 trillion in assets--Europe's largest--and give it an edge over the top U.S. bank, Citigroup, which currently has assets of $668.6 billion.
BNP chairman Michel Pebereau, who is regarded as a maverick in the clubby world of French banking, hailed his plan as "the best possible for the French banking system," but Societe Generale and Paribas rejected the offer as unfriendly. Fighting to save their original merger, the two takeover targets promised an additional $280 million in savings to their shareholders, bringing the total to $1 billion, closer to Pebereau's pledge of $1.4 billion in "synergies" at the new bank.
Jean-Hugues de Lamaze, who follows French companies for the Credit Suisse First Boston bank in London, says the BNP offer was "more aggressive than we are used to in France." But he also notes that the French government, which until recently took an active role in overseeing takeover deals in the financial sector, has remained silent at the outburst of cannibalism. "France is eager to remain in the race, and there's an overall feeling that [its institutions] have to be a bit more Anglo-Saxon, more market oriented," De Lamaze says.