Fitch Ratings entered the fracas over mergers among Europe's banks on Wednesday when it said that deals among the continent's mid-market players would be more likely than consolidation among larger firms. 

"Mergers and acquisitions among mid-tier EU banks are more likely than large-scale deals such as between Deutsche Bank and Commerzbank, whose recent discussions were reported in the media," Fitch said.

Fitch added, "The EU's competition authorities may raise objections if two large EU banks wanted to merge."

However, it noted that  Daniele Nouy, chairman of the ECB's supervisory board had recently said that in some parts of the euro area central bankers see room for consolidation, and "do not see any markets with too few banks."

Deutsche Bank (DB) - Get Report CEO John Cryan sparked excitement in late August when he said that both Germany and Europe could benefit from a consolidation in the industry.

The comments came on the same morning as it emerged that Cryan had held "hypothetical discussions" with his counterparts at Commerzbank (CRZBY) over the potential merits of a tie-up. 

However, Fitch poured cold water on the idea of a consolidation among Europe's larger players. 

"Many of the larger banks, traditional acquirers of other banks, are capital constrained, making it more difficult to fund sizeable deals," it said.

Deutsche Bank, Commerzbank, Credit Suisse (CS) - Get Report, UBS (UBS) - Get Report and others all saw their share prices rise in early September, some by as much as 10%, although most have since given up these gains. 

Despite being unconvinced by ideas about mega mergers, Fitch suggested that recent deals among mid-market players in Italy and Southern Europe could provide a glimpse of what further consolidation might look like. 

In April Spain's Caixabank (CIXPF) made a €900 million ($1 billion) bid for the remaining half of Portugal's Banco BPI (BBSPY) that it does not already own.

Faced with an increasingly tough regulatory regime, BPI has been under pressure from the European Central Bank to either raise capital or begin shedding assets.

But a full takeover by Caixabank might alleviate management and shareholders from having to go through either.  

Fitch highlighted Oddo et Cie's €760 million acquisition of a majority stake in BHF-Bank in Germany as an another example of what could drive additional consolidation. Oddo made an offer for BHF in November 2015, ultimately pipping China's Fosun at the post for the asset, in order to develop a niche footprint in Europe outside of France.

The Oddo transaction was also notable given the absence of distress at the target. But so too was the earlier acquisition of TSB Bank Group in the U.K by Spain's Sabadell's (BNDSY)  The Spanish lender spent £1.7 billion ($2.5 billion) to diversify into a new, and profitable, market.

Large European bank stocks were mostly down at noon in London on Wednesday.  Deutsche Bank, Commerzbank, UBS and Credit Suisse lost between 0.2% and 1.2%

Italian banks were also down, with UniCredit (UNCFF) and UBI Banca each shedding more than 1%, while Intesa Sanpaolo (ISNPY) lost 0.2%.