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European Banks Consider Mergers for Survival

The coronavirus pandemic has brought a sense of urgency to Europe’s ailing banks to scale up or risk dying.

Around the region’s capitals, banks are exploring mergers after a decade of weak returns. They are drawing plans on how they can face a prolonged era of low interest rates, a gloomy economic outlook and souring loans that are expected to rise as borrowers struggle to keep their jobs and businesses. Mergers are a way to combine balance sheets while taking out a large chunk of costs, including by closing duplicate branches and laying off staff.

In Switzerland, UBS Group AG has studied how it could absorb smaller rival Credit Suisse Group AG . In Spain, which has been severely hit by the pandemic, CaixaBank SA is buying Bankia SA to form Spain’s largest domestic bank. Another lender, Banco de Sabadell SA, is also exploring its options, including a domestic merger, a person familiar with the situation said.

A Sabadell spokesman said the bank has a plan to remain independent but will study options that increase shareholder value.

Christian Sewing, chief executive of Deutsche Bank AG , which last year held merger talks with rival Commerzbank AG that failed, recently said his bank wants to be part of consolidation once it improves its profitability. Commerzbank itself—also struggling to make money—might still need to find a suitor.


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