What's going on?
French multinational bank Société Générale said on Monday that it’d reached an agreement with US authorities to settle investigations into its wrongdoing – potentially clearing the stage for a merger with Italy’s largest bank, Unicredit.
What does this mean?
Société Générale was being investigated for bribery and manipulation of the London interbank offered rate (a.k.a. LIBOR) – the interest rate that banks agree to charge each other for short-term loans. The bank hasn’t said how much it’s had to pay in the settlement (some think it was as much as $1 billion) but it’s paid from an almost-$3 billion pot of money that was put to the side especially for this purpose.
With the investigation cloud no longer hanging over the company, a merger with Unicredit may be on the cards – that’s according to the Italian bank’s CEO, who’s been considering it for several months.
Why should I care?
For markets: Investors love certainty.
Société Générale’s stock was up by 1% on Monday. Investors are likely pleased the investigations are over – and that costs are finite and certain, even if undisclosed. However, shares in Unicredit fell by 1%. Its investors might be worried by the potential uncertainty of a merger – regulators would likely have to sign off on any deal, and the complexities of combining two large companies could prove a stumbling block to any revenue boost or cost savings (a.k.a. synergies) both companies would hope to achieve.
The bigger picture: Banks are bulking up.
According to reports in May, British bank Barclays was considering an approach for rival Standard Chartered. Then on Monday, the UK’s Clydesdale and Yorkshire Bank Group improved its acquisition offer to shareholders of Virgin Money. Some European banks are under pressure to get bigger via mergers or acquisitions in a bid to be more competitive on the global stage – a number have struggled to grow profits while their US competitors have made hay in areas like trading stocks and bonds.