FirstFT: European bank mergers delayed two years by interest rate rises

Rising interest rates have set back European bank mergers and acquisitions by at least two years, dealmakers warn, as a punitive feature of accounting rules means a long-awaited consolidation in the sector faces even higher hurdles.

Dealmakers had bet higher rates would provide more cash for acquisitions as banks benefited from better margins and a boost to their share prices as profitability improved.

Many had also hoped UBS’s state-sponsored rescue of Credit Suisse could spark similar deals between other national champions.

However, banks across the continent have vast stocks of corporate and consumer loans, as well as government debt, that were sold in a much lower rate environment. As part of any acquisition, those assets would have to be marked to market and valued significantly lower than newer loans issued at more lucrative rates.

“Accounting rules and their impact on capital are a big hindrance for M&A at the moment,” said Dirk Lievens, head of the European financial institutions group at Goldman Sachs.

Here’s what I’m keeping tabs on today:

• US debt ceiling: The House rules committee will determine the framework for considering a deal to avert a national default before it is put to a vote tomorrow.

• Economic data: The Conference Board releases results from its survey on US consumer confidence for the month.

• Results: Greencore, Hollywood Bowl and HP report.

Five more top stories

1. Philip Morris International’s chief says the company is charting a path to becoming an ESG stock as part of a push to win back investors, citing its pivot away from cigarettes towards less harmful vapour-based nicotine alternatives. Read the Financial Times interview with Jacek Olczak.

2. Many of the biggest names in the cryptocurrency market still dodge basic questions about their businesses even as investors step up their scrutiny of the industry, according to a survey by the FT. Prominent crypto companies declined to share or provided partial answers to basic questions such as where they were headquartered.

3. Exclusive: German start-up Proxima Fusion has secured initial funding to develop a revolutionary fusion energy machine that it hopes can provide a future source of abundant, emissions-free power. It is the first fusion company to spin out of the country’s revered Max Planck Institute for Plasma Physics.

4. Exclusive: Despite more than 300,000 sewage spills, the UK Environment Agency fined just four water companies for breaching an overflow permit between 2018 and 2022, according to official data obtained by the FT through a Freedom of Information request. Read the full story.

5. The UK’s Labour party plans to force landowners to sell plots at lower prices if it wins the next general election, in an effort to cut home-building costs in England. Shadow levelling-up secretary Lisa Nandy intends to reform how land is valued when acquired by councils through “compulsory purchase orders”.

The Big Read

Centerview has an envied reputation, earning staggering fees advising on some of Wall Street’s largest transactions despite a modest headcount and largely avoiding the internal drama that has paralysed other banks — until recently. Now, a bitter lawsuit with a former partner is bringing that harmonious culture — and the firm’s future — into question.

We’re also reading . . . 

Chart of the day

Turkey’s lira weakened to near record lows yesterday in the aftermath of Recep Tayyip Erdoğan’s re-election, as analysts warned that the next big test for the victorious president would be addressing the country’s shaky $900bn economy.

Take a break from the news

Bestselling author Curtis Sittenfeld joins host Lilah Raptopoulos on the FT Weekend podcast to talk about the state of romantic comedies, how they’ve changed and where they could go next.

Additional contributions by David Hindley and Emily Goldberg