The bank consolidation and government bailouts taking place in Europe are keeping pace with what we're experiencing in the United States. Recent transactions include European lender
Dexia SA receiving a $9.2 billion cash infusion from the governments of France, Belgium and Luxembourg; and
Lloyd's TSB Group plc buying Scotland's HBOS plc for $21.8 billion.
What's the mood in Europe's financial capital and just how risky are these hastily negotiated mega-deals? For a little perspective, we checked in with Andy Maguire, who from his London base leads the Boston Consulting Group's global retail banking practice.
Broadly speaking, says Maguire, "the general public is anxious and worried, without necessarily understanding what it all means just yet. And people in the industry don't know which way is up." On the US Congress' failure to pass the $700 billion bailout package, Maguire says Londoners were astonished. "People thought something would be done that would put a peg in the rock face to hang onto while we work our way up."
The pace of consolidation is understandably upping the anxiety. It's unnerving enough to witness the near-collapse of a single financial giant, let alone the domino affect playing out now. It doesn't help that deals in Europe and the US are in some cases the only alternative for a failing bank.
"All traditional valuation metrics are out the window," says Maguire. "In normal times, people's view of [a target's] trading run rate and the last couple of years are very indicative of where that business is. I don't think anybody quite believes that the numbers of either party in a merger these days has any real meaning to them."
There is a upside to this. Maguire says when the alternative to a merger is bankruptcy, there is tremendous motivation to get the deal done. "Where in a normal environment there tends to be a bit more political arm wrestling going on because everybody has some chips in the game, the fact that there's a burning platform you're working off actually saves a lot of vacillation and procrastination that often goes on." - Suzanne Stevens
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