Mergers and Acquisitions in the German Banking Sector – Greater Consolidation Potential in the Consumer Credit Market

The global financial crisis has slowed world-wide M&A activity in the banking sector. In Germany, the volume of transactions will regress as well. "The economic downturn and the strong competition could lead to a number of smaller acquisitions, above all in the consumer credit market", says Matthias Köhler, banking expert at the Centre for European Economic Research (ZEW), Mannheim.

While the global financial crisis already thwarted world-wide M&A activity in the banking sector, the transaction volume in the German banking sector considerably rose again in the second half of 2008. Above all, the acquisition of Dresdner Bank by Commerzbank for about €10bn increased the transaction volume. Other acquisitions, such as the involvement of Deutsche Bank with Postbank or the acquisition of Citibank by French Crédit Mutuel added to the total volume. Savings banks and mutual savings banks have also been consolidated during the global financial crisis.

But the times of large acquisitions in the German banking sector are over. “Until cross-pillar M&As between savings banks, mutual savings banks and private banks are possible, further large transactions in the German banking sector remain highly unlikely,” says Köhler. Rather, everything hints at a series of smaller mergers and acquisitions. “In the field of consumer credit especially, there still exists consolidation potential,” Köhler adds.

The German consumer credit market is highly fragmented. In addition to savings banks and mutual savings banks, many small institutions compete for customers. Due to the economic downturn in Germany and more hesitant consumers, it is very probable that smaller institutions will be pressured into merging with their larger competitors. Furthermore, foreign credit institutions could exit their consumer credit businesses in Germany in order to strengthen their equity base and focus on their domestic markets.

For further information please contact

Matthias Köhler, E-mail: koehler@zew.de