European banking mergers and acquisitions (M&A) are back. Market volatility triggered by US tariff actions has threatened the global M&A recovery, with several deals delayed or canceled — but it does not seem to have dulled dealmaking in banking. European banking deals totaling a record $27 billion have been announced since the start of 2025, almost double the volume for the same period in 2024. With Europe's top banks generating substantial excess capital — over 300 billion returned to shareholders since 2022 — there is renewed capacity and appetite for M&A activity.

Deal volumes already had rebounded strongly from pandemic historical lows, doubling to 36 billion between 2020 and 2024 — driven by the sector’s restored profitability, improved capital positions, and strategic urgency for scale and diversification.

While it is too early to call the ultimate size and impact of tariff actions on the European banking deal landscape, the underlying logic for consolidation in European banking is more compelling than it has been for a decade. The resurgence in M&A activity and its future potential is a reminder that the best way for management teams to capture value is by following a thorough and time-tested set of best practices.

Why European banks are ready to strike big in M&A

European bank management teams have the motivation and now the means to engage in strategic M&A.

Building scale and capability remain key catalysts for action. Thirteen years after the introduction of the European Banking Union, the region, including the UK, remains significantly more fragmented than the US. But given material fixed costs of technology and regulatory compliance, scale matters. Banks are also increasingly looking to use M&A to acquire capabilities, such as wealth and asset management, and payments, as well as to improve the quality of earnings and returns.

Capacity and an appetite to engage in M&A from top European banks are also fueling activity, after a decade in the doldrums. Over the next two years, top quartile European banks are expected to generate over $500 billion in excess capital over regulatory minima. With European bank valuations close to record highs, management teams have an increasing set of choices on where to deploy that excess capital. The relative returns of M&A look increasingly more attractive than stock buybacks. Meanwhile, regulators in Europe have also become more supportive of banking M&A.

Five strategic deal types driving European bank M&A growth

In 2024, five key deal types accounted for approximately 60% of total deal value, and we believe these themes will continue to influence M&A activity in the coming two years.

Domestic banking consolidation is well underway in several markets across Europe, with Italy, the UK, Nordic countries, and Central and Eastern European countries as the markets most likely to see further consolidation. The case for consolidation is clear: building scale and diversification, while delivering material cost synergies from head office, branch networks, and IT systems.

Cross-border banking M&A has motivated 30% of deal value since 2020, and the European Central Bank supports further cross-border consolidation. Yet cross-border M&A faces many economic and political barriers. Successful cross-border transactions include those with compelling value creation propositions and political support, typically in adjacent countries or subregions with cultural connections or connected economies.

Asset-backed financing has emerged as a significant trend, with banks acquiring firms to rationalize their footprint. In the current GDP growth market, European banks are looking to increase loan balances through inorganic means, and asset-backed financing businesses represent an attractive avenue, with mid-teen returns and low cost of risk. We anticipate this trend will continue.

Wealth management is a key growth area for European banks as they seek to grow stable and high-quality fee income. The demand is there, and so is the supply of assets. We expect about $25 billion in enterprise value of wealth managers held by private equity firms to come to the market over the next three years. The majority of wealth management deals range from acquisitions of scale wealth managers to targeted purchases of direct-to-consumer investment platforms or product capabilities.

Payments are also a key battleground in banking M&A, with banks seeking to capture high-quality fee income and higher growth of payments companies. We see a broader range of deal structures, ranging from partnerships and joint ventures to divestments and co-investments. European banks are also looking to build scale and mutualize costs in card issuing, processing, and acquiring by developing bank-led joint ventures.

Four critical actions for M&A success in European banking

Successful M&A, defined as delivering enduring outperformance versus peers, hinges on making the right deal at the right time and executing with discipline. There are four imperatives for management teams considering M&A:

Adopt a robust and strategic approach to capital allocation

This will help to determine when to pursue an M&A versus alternative uses of capital to maximize return on investment. Any transaction should be anchored in a clear industrial plan, and it is critical to bring investors along the journey, messaging why and when M&A will and will not be pursued.

Build relationships and be ready to seize the moment

The best deals are often years in the making and require diligent preparation, patience, and opportunism to move at pace when the time is right. This requires diligent research on targets and often relationship building with target management.

Anchor the deal in a strong and defensible value case

Be transparent with investors and your organization on how value will be created and protected. Be clear on the cost, revenue, and capital synergies required to deliver the target return on investment. Be explicit on the “crown jewels” of the business that must be protected.

Win hearts and minds across the stakeholder spectrum

Banking M&A transactions, particularly for larger or cross-border transactions, can be politically sensitive. It is critical to build a coalition of the willing that includes investors, government, unions, and employees to understand their concerns and build a narrative for why the deal can deliver value.

In conclusion, European banking M&A in 2025 is surging, fueled by the need for scale, strategic capability, and regulatory support. With ample capital and strong consolidation appetite, banks are pursuing transformative deals, focusing on domestic and cross-border mergers, wealth management, and asset-backed financing, setting the stage for sustained growth and innovation.