Bank consolidation not according to plans

By Steve Slater

LONDON (Reuters) - A long awaited consolidation of Europe's banks is rapidly taking shape, executed through shotgun rescues and bargain purchases by stronger banks rather than a harmonisation of business across borders.

Governments, who in the past have been the biggest barrier to takeovers by blocking dominant banks, are now acting as kingmakers by stepping in to rescue ailing banks and giving a nod to deals they would have blocked a year ago.

That could allow ING (ING.AS) to buy the Dutch assets of ABN to create a national powerhouse just days after Lloyds TSB (LLOY.L) was allowed to grab a dominant UK position. There has been chatter that Switzerland's UBS (UBSN.VX) and Credit Suisse (CSGN.VX) or France's BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA) could come together if turmoil from a global credit crisis deepens.

Other banks, including Spain's Santander (SAN.MC) and Britain's Barclays (BARC.L), are taking advantage to pick up assets at "once in a generation" prices.

"If banks can go out and buy assets and can get them at less than book value, that has got to make a handful of institutions stronger," said Simon Maughan, analyst at MF Global.

"Growth will resume at some point and those banks with materially more market share that they obtained cheaply will be the winners," he said.

BENELUX ASSETS IN PLAY

The latest flurry of interest fixed on Fortis (FOR.BR), putting the Belgian-Dutch group at the heart of consolidation speculation for the second time in a year.

Fortis' part in a consortium takeover of ABN AMRO last year stoked an expectation that M&A activity would follow in its wake.

The global financial crisis has changed that.

During a frantic weekend of talks Fortis was effectively put up for sale. BNP Paribas and ING showed an interest but pitched low-ball offers, and the Belgian, Dutch and Luxembourg governments opted to part-nationalise it.

That may still not be enough and Fortis is selling assets to shore up its capital, including the ABN Dutch retail bank business it bought for 24 billion euros but has not taken delivery of yet. It may only fetch about 7 billion euros, analysts at Dresdner predicted.

ING has agreed to buy the business and will seal a deal in the next two weeks, people familiar with the matter said.

Britain's government also stepped in to nationalise ailing lender Bradford & Bingley BB.L on Monday and Santander stepped in to buy its deposit book and branches, adding to its planned takeover of Alliance & Leicester ALLL.L. "(It) will mean, in effect, Abbey, A&L and B&B are all merging on the High Street," said Alex Potter, analyst at Collins Stewart.

Santander, BNP and others are benefiting from a strong capital position and more confidence among investors in their futures than most of their rivals.