European Banks Test Their Independence

Investors appear to be embracing deals in France and Italy, and some speculate that future mergers won't be limited by national boundaries.
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BERLIN -- European financial markets will declare their independence from Wall Street on Monday, as the U.S. enjoys an extended weekend to grill franks and burgers in celebration of the Fourth of July holiday.

And while things may slow down a bit as the U.S. closes shop at the beginning of the coming week, Europe's market participants should have plenty to keep them occupied until American traders, their bellies distended by burgers and suds, trundle back to the office Tuesday.

European equity traders will likely maintain their focus on the banking and financial sectors. Late last week, merger news out of France and Italy bolstered the interest-rate-sensitive banking sector, which was already jubilant over the proclamation of neutrality that accompanied the U.S.

Federal Reserve

's 25-basis-point hike. The action helped support stock markets across the Continent with both deals seen as spurring consolidation of the industry.


Banque Nationale de Paris

improved its chances of winning a hostile bid for both

Societe Generale




after it increased its offer to a more-than-expected $42 billion. While Societe Generale and Paribas would still appear to prefer a union without Banque Nationale de Paris, many analysts now favor a three-way linkup, which would create one of the largest banks in the world. By upping the ante, however, BNP shares fell 3%, while Societe Generale and Paribas stock climbed 2% on the news.

"We believe that BNP has now done enough to secure the creation" of a three-way merger, says Norrie Morrison, an analyst for

Williams de Broe

in London. Because such a deal is "the market's favorite solution," Morrison remains a buyer of shares in all the banks.

In Italy,

Banca Commerciale Italiana


, more commonly known as Comit, agreed to merge with

Banca Intesa

to form the country's largest and Europe's eighth-largest bank, with a market capitalization of 27.5 billion euros. Intesa's offer is less than the one Comit received three months ago from


, but is viewed as being less hostile and therefore more likely to work. How long the new bank will be Italy's largest remains to be seen, however, as many market watchers are expecting more mergers in the coming months.

And although the merger action continues to be delineated by national boundaries, the fact that banking issues outside France and Italy -- but inside euroland -- also did well last week shows that many people believe a move to create a euro-area giant is likely only a matter of time. That belief will have many sniffing through the sector for likely acquisition targets.

Whether the Europeans can manage to do that while the Americans are barbecuing is another matter.