A Century of Banking Consolidation in Europe

The History and Archives of Mergers and Acquisitions

Manfred Pohl, Teresa Tortella

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351962803
• Edition: 1
• Topic: Geschichte
• Subtopic: Weltgeschichte

From the late nineteenth century to the late twentieth century the European banking sector experienced countless mergers and acquisitions. The outcome of this century of consolidation is strikingly similar across the continent, with the banking sector of each country now dominated by a handful of giant banking corporations. Consolidation and concentration trends in banking was the theme of the Academic Archive Colloquium of the European Association for Banking History held in Madrid in June 1997. This volume is comprised of the 18 papers and responses presented at the Colloquium by a truly international group of delegates. Some of the themes explored in the book include: the significance of mergers for bank archives; the regulation of mergers and their impact on banking legislation; reactions to consolidation from within and without the banking industry; case studies of particular mergers and their impact on the wider banking community. Youssef Cassis's introductory chapter provides a general survey of trends in the consolidation process and suggests that the advent of the Euro may herald a new era in the history of European banking consolidation.

PART I
History and Archives of Consolidation in European Banking: General Trends and some Case Studies

CHAPTER ONE

Introduction: A Century of Consolidation in European Banking - General Trends

Youssef Cassis

Consolidation rather than concentration has been chosen as the theme of the conference from which this book has issued. The two notions have much in common - both point to the idea of a larger share of the banking business in the hands of a smaller number of banks. There is no doubt that several common trends are likely to be identified whether a paper deals with concentration or consolidation in European banking. There are, however, differences, which this chapter will try to emphasize. In particular, consolidation puts greater emphasis on the microeconomic level, on specific banking institutions rather than on macroeconomic implications, though the latter should not be overlooked.

At first sight the outcome of a century of consolidation is strikingly similar across Europe. In all countries, banking systems have become dominated by a handful of giant, universal-type banks, most of which were already large and powerful institutions a hundred years ago. The major changes have been the decrease in the number of such banks and their increased internationalism and universalism. In some respects, the history of banking consolidation is therefore the history of a select group of large banks which have managed to maintain or to gain dominance over the industry, often - though not always - through mergers and acquisitions. In other respects, however, it overlaps with the history of the banking sector and its interaction with the economy as a whole.

The object of this chapter is to highlight some of the general trends underlying this consolidation process. Given the space available and the huge scale of the subject, such a presentation can only be general and tentative, and serve as a general introduction to the more specific topics which are discussed in subsequent chapters of this book. Despite the apparent common outcome of a century of consolidation in European banking, different routes have been followed and there still remain substantial differences. Moreover, consolidation is an ongoing process, which has gathered pace in the late 1990s.¹ The emphasis of the paper will be on the common features displayed by the European experience rather than on national peculiarities. However, in order to take account of the diversity of this European experience, a broad comparative perspective will be maintained throughout. To this end, six questions will be addressed, each related to commonly perceived trends in the consolidation movement in European banking.

1. How have Europe’s largest banks reached their dominant position?

Table 1.1 The 30 largest European banks, 1995

Great Britain	France	Germany	Italy
HSBC Barclays Natwest Abbey National Lloyds	Crédit Lyonnais Crédit Agricole BNP Société Générale Paribas Suez	Deutsche Dresdner WestLB Commerz Bayer. Vereinsbank Bayer. Landesbank	Inst. Bancario S. Paolo di Torino Banca Nazionale del Lavoro Banco di Roma Banca Comerciale Italiana
Spain	Holland	Belgium	Switzerland
Hispano Central Bilbao-Vizcaya Santander	ABN AMRO Rabobank	Générale de Banque UBS SBS	Crédit Suisse

Sources:Times 1,000, Banking Almanac.

Let us first consider the end-result, at least for the time being, of a century of banking consolidation. Table 1.1 lists the 30 largest European banks in 1995, arranged by country of origin. Looking at the table from the perspective of consolidation, that is of a group of dominant core banks, three routes to the top can be identified.² A first group of banks reached a dominant position almost from the moment of their foundation in the very early days of joint stock banking. These were, to use the Chandlerian terminology, the first movers, the creators of a new form of banking organization. This was the case with the National Westminster Bank in Britain (The National Provincial Bank of England was founded in 1833 and the London and Westminster Bank in 1834); the Crédit Lyonnais, Société Générale and Paribas in France (founded respectively in 1862, 1864 and 1872); the Deutsche Bank and the Dresdner Bank in Germany (1870 and 1872); the Banco di Roma and the Banca Commerciale Italiana in Italy (1880 and 1894); the Banco Bilbao-Vizcaya and the Banco Central Hispano in Spain (1857, 1900); the Crédit Suisse and the Swiss Bank Corporation in Switzerland (1856 and 1872); the ABN AMRO in Holland (its oldest constituent, the Nederlandsche Handel-Maatchappij, was founded in 1824); and of course the Générale de Banque in Belgium, founded as early as 1822. Half of the leading European banks in the early 1990s - 15 out of 30 -belonged to this first group, a very high proportion indeed. A few giants thus emerged at a very early stage in the history of modern banking development and have been able to retain their position since then.

A second group, making up about just under a quarter of the whole, consists of what we could call the ‘challengers’, those banks which were able to rise to the top at a later stage of the development of joint stock banking. They were usually the result of mergers between two or several second-ranking firms among the large banking institutions. Such moves first took place in Britain: Barclays Bank was founded in 1896 through the simultaneous merger of 20 private banks whose partners were all linked by family ties;³ while Lloyds and Midland (now part of the HSBC Group) are unique examples of provincial banks rising to the top through a systematic amalgamation policy.⁴ In Switzerland, the Union Bank of Switzerland was created in 1912 by the merger of two middle-sized banks, the Bank in Winterthur and the Toggenburger Bank. In Germany, the Commerzbank, though founded in 1870 in Hamburg, did not reach a leading position before its mergers with the Mitteldeutsche Privat-Bank in 1920, and then with the Mitteldeutsche Creditbank in 1929. Similar steps were taken after the Second World War: in 1971 the Bayerische Vereinsbank (established 1869) merged with the Bayerische Staatsbank (established 1780) to become Germany’s fourth largest bank; while, in Spain, Banco de Santander began its expansion in 1946 with the acquisition of several banking institutions and the opening of branch offices abroad.

The third group of banks reached the top through a completely different route: they emerged from the world of savings banks, mortgage banks and cooperative banks, which until recently had lived apart from the world of commercial banking. In Britain, Abbey National was a building society before becoming a bank and was converted from a mutual society to a public limited company in 1989.⁵ Other building societies have recently followed a similar path, in the first place the Halifax, which in 1997 became one of the country’s largest banks. In France the Crédit Agricole, at one time the world’s largest bank, started with the 1894 law authorizing farmers to form small local mutual societies, the Caisses Locales de Crédit Agricole Mutuel.⁶ In Germany the Westdeutsche Landesbank (WestLB), the Bayerische Hypotheken-und Wechsel-Bank (Hypo-Bank) and the Bayerische Landesbank started as mortgage banks or savings banks. The Banca Nazionale del Lavoro in Italy and the Rabobank in the Netherlands both have their roots in the cooperative movement. Altogether a surprising 27 per cent (8 out of 30) of the largest European banks in 1995 had such origins. Their expansion, however, has been fairly recent - with the exception of the Hypo-Bank, already the eleventh largest bank in Europe (and the third in Germany) by 1913.⁷ Starting from a fairly narrow basis, banks such as Crédit Agricole, Banca Nazionale del Lavoro, Rabobank, WestLB (formed in 1969 by the merger of Rheinische Girozentrale und Provinzialbank and Landesbank für Westfalen Girozentrale) considerably enlarged the range of their clients and the scope of their activities in the decades following the Second World War.

2. Is there a meaningful relationship between banking consolidation and concentration?

The developments described above form merely the tip of the iceberg. Underneath, the banking population has remained very dense. Contrary to what one might think, consolidation has not been accompanied by a sharp decline in the number of banks. There were more than 23 500 banks in Germany in 1913, and still more than 22 000 in 1938, that is after the emergence of the so-called ‘Big Three’ (Deutsche, Dresdsner and Commerz) - though it must be admitted that over 19 000 of them were cooperative banks.⁸ There were nearly a thousand banks and établissements financie...