European banks are getting more profitable — and that's going to trigger a wave of mergers and acquisitions across the continent, according to Goldman Sachs. The investment bank says the rising earnings power of lenders will likely reshape the EU banking landscape and intensify competition.
Why profitability matters now
For years, European banks struggled with low interest rates, weak loan demand and heavy regulation. That's changing. Higher rates and cost-cutting have pushed profits up across the region. Goldman Sachs argues that stronger balance sheets give banks both the confidence and the firepower to pursue deals. The logic is simple: when you're making money, you can afford to buy a rival — and you have more incentive to do so before someone else does.
What kind of deals to expect
Consolidation won't be limited to small players buying each other. The analysts see potential for cross-border mergers and even large-scale combinations that could create pan-European banking giants. The EU has long talked about creating a true single market for banking, but progress has been slow. A wave of M&A might accelerate that integration — or it could just concentrate power in a few hands. Either way, the landscape will look different in five years.
The competition question
More consolidation usually means fewer banks, which can reduce competition. But Goldman Sachs notes that the EU banking sector remains fragmented compared to the US. So even after a round of deals, there could still be enough players to keep markets competitive. Regulators will be watching closely. The European Central Bank has signaled it's open to consolidation as long as it doesn't hurt customers or financial stability.
The key question is which banks will act first. Some of the biggest names — like BNP Paribas, Deutsche Bank, and UniCredit — have already hinted at ambitions to grow. But smaller lenders in countries like Italy, Spain and Germany may be more attractive targets. Goldman Sachs expects deal activity to pick up over the next 12 to 18 months, as banks finalize their 2024 results and start planning for 2025. The clock is ticking for those who want to lead the reshuffling rather than be left behind.
