Pam: I went back to re-enter the email alerts tag.

BNP Paribas SA’s reported interest in buying Dutch lender ABN AMRO Bank NV could indicate hesitation in the French banking giant’s digitization push, analysts have said.

Europe’s biggest bank suggested it would be willing to buy the Netherlands’ third-largest lender during a meeting a few months ago with its main owner, the Dutch government, according to a June 17 report from Bloomberg. News. A deal would be the first major cross-border European banking merger since regulators began encouraging consolidation after the 2008 financial crisis.

BNP has the capital available to fund a deal – which would almost certainly exceed ABN’s current market capitalization of 9.23 billion euros – following its $16.3 billion sale of San Francisco-based Bank of the West. , in December 2021.

Strategic issues

In February, BNP said its 2022-2025 strategy would focus on investing in technology companies to accelerate its shift to digital banking.

“Strategically, [buying ABN Amro] may not be the best use of excess funds for BNP,” said Sam Theodore, senior consultant at Scope Insights, in an email. “Buying a large traditional bank in another country is perhaps less optimal in the digital age than pursuing digital initiatives in France. , across Europe, and selectively globally.”

BNP Paribas and ABN Amro did not respond to a request for comment.

France, where BNP generated more than 13% of group revenue and around 8% of group pre-tax profit in 2021 from its retail banking business, lags behind nine other European markets in market penetration. online banking, according to 2021 data from the statistics office of the European Union, Eurostat. Around 72% of French people banked online in 2021, compared to 95% in Denmark, 93% in Finland and 91% in the Netherlands.

Improved digital banking services reduce customer reliance on large, expensive retail branch networks, which are a major reason for French banks’ expense-to-income ratios — a key measure of efficiency — are higher than their European counterparts. Among a sample of 38 of Europe’s largest banks, the four largest French lenders by total assets ranked in the bottom half in terms of efficiency in the fourth quarter of 2021, according to data from S&P Global Market Intelligence.

Technology is one of the three pillars of BNP’s new strategy, along with growth and sustainability.

“We plan to invest in technology, new business models, targeted acquisitions, [and] accelerate organic growth in a number of areas,” CEO Jean-Laurent Bonnafé said during the bank’s strategy presentation in February.

BNP’s interest in ABN Amro casts doubt on some of the predictions made in the bank’s strategy and should be interpreted negatively by investors, Andrew Lowe, French banks equity analyst at Berenberg, said in a June 17 note. .

“A drive to enter a new region via a large deal without obvious cost synergies suggests its opportunity for organic growth may be weaker than expected,” Lowe said.

BNP has a history of seeking to drive growth through acquisitions in unfamiliar European markets. The bank bought Italy’s BNL in a €9 billion deal in 2006, followed by a €14.5 billion takeover of Fortis’ Belgium and Luxembourg operations in 2009.

Drop in bank stocks

Shares of European banks have lost value in recent years, trading well below levels seen just five years ago. The S&P Europe BMI Banks Index has fallen more than 27% since June 2017, while ABN Amro’s share price has fallen more than 50% over the same period, making the Dutch bank relatively cheap.

Still, the lack of overlap between BNP and ABN’s businesses would make it difficult for the Paris-based lender to find enough savings to make the deal attractive, Lowe said.

“Without the European banking union, which we believe is still far from being implemented, a cross-border acquisition is difficult to justify,” Lowe said.

The banking union is a project of the European Union aimed at fully integrating the banking systems of the euro zone in response to the weaknesses revealed by the global financial crisis and the sovereign debt crisis of the euro. One of the main obstacles to its realization is the reluctance of national authorities to allow cross-border banking groups, such as BNP, to manage group-wide liquidity in a pool set up by the parent company, which would risk undermine national banking systems in the event of a crisis.

The price the Dutch government is willing to accept for its 57% stake in ABN Amro could be another obstacle to a deal. The Dutch government bailed out the bank in 2008 when the global financial crisis hit as management in previous years had weakened the lender. The state has since struggled to sell its stake and still owes 11.1 billion euros in the transaction, according to an estimate by Berenberg.

“We expect the Dutch government to be a reluctant seller of [the level BNP is likely to bid]“, said Lowe.

Channeling capital from the sale of Bank of the West into a major acquisition rather than spreading it across a variety of deals is attractive in some ways, said Anke Reingen, banking analyst, RBC Capital Markets, in a note dated 17 June. Still, the imperative to accelerate the digitalization of the bank could convince the bank to back out of such a deal, Reingen added.

“While it would be positive to have a recognizable ROI from BancWest’s product rather than drip feed into smaller transactions, we expect BNP to use the product for more transformational change. in the bank rather than expanding geographically,” Reingen said.