A Luxembourg market analysis

Mergers and acquisitions

In the evolving landscape of the private banking sector, the wave of consolidation we have seen in preceding years has continued to surge throughout 2022 and 2023. This phenomenon is driven by a spectrum of objectives, ranging from strengthening market positions and expanding operational scales, to the recalibration of business models through the divestiture of non-core assets.

In 2022/2023, transactions in the sector remain driven by several key factors. For buyers, these include economies of scale, acquisition of new competences or entering new markets; while, for sellers, a notable driver is the recalibration of business models towards core activities, involving the strategic divestiture of non-core assets.

The pursuit of larger scale continues to play a pivotal role in shaping M&A activity within the private banking sector. The expansion of the customer base is a primary avenue through which banking institutions seek to improve profitability. This strategy continues to be pertinent in light of the evolving and more complex regulatory framework and shifting customer expectations, which has contributed to increasing costs to operate. Recent transactions where such factors may have been part of the considerations include, for instance, the acquisition of Compagnie de Banque Privée Quilvest S.A. by Fideuram Bank S.A.

Another significant evolution in the landscape of banking M&A is the recalibration of business models towards core activities. Banking institutions, whether international or local players, are meticulously assessing their operations and divesting non-core assets. This strategic realignment is tailored to each bank's unique business model and goals. As international banks refocus on core activities, they make strategic divestitures, such as shedding Luxembourg operations that lack synergies with their central businesses. Similarly, local banks are actively streamlining their customer portfolios and service offerings. This deliberate streamlining allows them to channel resources into their identified core strategic areas. Transactions where such considerations are likely to have played a role include the sale by Banque Havilland S.A. of their institutional business to Banco Inversis S.A., the sale of Danske Bank International S.A. to Union Bancaire Privée (Europe) S.A.

There is also continued interest by leading banking players from other geographies to establish and build a presence in Luxembourg. This interest typically stems primarily from the prospect of expanding their core services already established in their home markets to Luxembourg. The enhanced prospect of leveraging the Luxembourg bank as a foundational step toward broader expansion within the Eurozone further enriches the appeal of this strategic maneuver. One such transaction that was recently announced was the acquisition of FIS Privatbank by Banco BTG Pactual S.A.

We expect the three abovementioned trends to continue to shape the Luxembourgish banking M&A activity in the coming years. While the increase in interest rates have provided a much-needed breathing room for some of the smaller private banks in Luxembourg, the decline in asset prices and increases in costs are expected to continue to challenge subscale players. The focus on core activities is likewise expected to be a driving force for M&A activity, with several private banks expected to divest non-core operations such as institutional businesses or management company activities. Similarly, we continue to see strong interest in Luxembourg from banking players hailing from outside the European Union.

European banking supervisory authorities have generally had a favourable view of the ongoing consolidation wave. This wave has been seen as a means to bolster banking efficiency, stimulate technological innovation, and mitigate risk associated with undersized banks. In alignment with this trend, specific measures have been enacted to relax the current regulatory framework, aiming to harmonize key constraints that previously led to disparities in national regulatory structures. These measures also aim to encourage cross-border transactions.

Nonetheless, there is also a high degree of regulatory scrutiny, particularly on cross-border deals. Regulatory bodies maintain vigilant oversight, raising concerns and intervening to prevent any takeovers that could potentially undermine financial stability, competition, and the safeguarding of investor interests, especially when such transactions involve cross-border elements. Consequently, we continue to observe that a number of announced M&A transactions fail to complete. One of the most notable transactions that was announced but failed to complete include the acquisition of BBH’s investor services division by State Street (2021).

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Assets under management and service offering

Further reading

A Luxembourg market analysis

The consolidation process continues.

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Understanding industry performance

Luxembourg private bank profitability faces multiple pressures.

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An overview of business models

Explore the evolution of private bank business models in Luxembourg.

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