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EC Analyses Obstacles To Cross-Border Finance Sector Mergers

by Ulrika Lomas, for, Brussels

10 November 2005

The European Commission on Tuesday presented to the Council of Economic and Finance Ministers (ECOFIN) its preliminary analysis of why there has been little cross-border consolidation so far in the EU financial sector.

A market participant survey launched in April 2005 helped to identify the main obstacles, and according to the EC, this analysis will now help to clarify what now needs to be done to tackle those obstacles.

Internal Market and Services Commissioner Charlie McCreevy explained that:

“Cross-border consolidation in the financial sector is weak compared to other sectors. Despite the fundamental single market principles of free movement of capital and freedom of establishment, too many obstacles stand in the way of EU financial institutions that want to go cross-border."

"In many instances, the business case is simply not persuasive enough. Given the fierce global competition that is emerging, we cannot afford to have 25 medium-sized markets made up of second-division champions. We want to ensure that we extract the still-to–be-realised benefits of scale that the European market of 450 million people can offer. Therefore we must tackle the obstacles identified.”

In the aforementioned survey of market participants, an overwhelming majority of respondents identified the lack of cross-border cost synergies as the major obstacle. Reasons put forward to explain this were threefold: (a) a lack of integration of the internal market for retail financial products, (b) the implications of diverging supervisory rules and practices for large cross-border financial groups, and (c) impediments to corporate reorganisation on a pan-European basis.

Respondents also pointed at an unfavourable, and even disabling, environment for conducting cross-border transactions in the financial sector. They finally mentioned individual reluctance, from consumers and employees, towards non-domestic EU entities, which may discourage potential buyers.

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