Published by Global Banking and Finance Review
Posted on December 17, 2024
FRANKFURT (Reuters) - The European Central Bank will apply a favourable regulatory treatment of banks' insurance holdings on a "case by case" basis, the ECB-POLICY-3fdc7763-f2c0-4c30-b494-8614852eaf43>ECB's top supervisor Claudia Buch said on Tuesday.
The so-called Danish compromise, which reduces the cost in terms of capital for banks to own an insurer, is key to a number of proposed deals, including BNP Paribas's bid for AXA Investment Managers and Banco BPM's offer for Anima Holding.
The use of the Danish compromise makes the acquisition of a fund manager, such as AXA IM or Anima, much cheaper for the buyers in terms of the hit to their regulatory capital.
The compromise lets banks risk-weigh their insurance investments instead of deducting them in full from their capital.
Both deals rely on an extensive interpretation of the Danish compromise which bankers and analysts said ignited a chain reaction in Europe's financial sector in terms of potential mergers and acquisitions.
"We currently have under consultation a new guide that clarifies our approach there but at the end it's also an issue that we would also assess on a case by case basis for individual institutions," Buch told a news conference.
The ECB-POLICY-3fdc7763-f2c0-4c30-b494-8614852eaf43>ECB has launched a consultation over its regulation on how to apply options and discretions available in the European Union law.
The Danish compromise was introduced during the Danish EU presidency more than a decade ago to temporarily offset tough 'Basel' rules for European banks with insurance businesses.
In April the EU parliament approved regulation that makes the Danish compromise permanent. A regulatory clarification later indicated that the favourable treatment could apply not only to insurance businesses held by banks, but also to assets those banks buy through their insurance units.
However, the ECB-POLICY-3fdc7763-f2c0-4c30-b494-8614852eaf43>ECB has the final say in the matter.
BNP is carrying out the AXA IM acquisition through its insurance business BNP Paribas Cardif. Banco BPM has bid for Anima through its insurance unit Banco BPM Vita.
Mediobanca Securities analyst Andrea Filtri calculated that the 5-billion-euro ($5.25 billion) AXA IM deal, without the Danish compromise, would cost BNP Paribs 65 basis points of capital instead of just 25 bps.
"The once-a-forbidden-dream is now reality, opening a new horizon for M&A," Filtri said.
($1 = 0.9527 euros)
(Reporting by Francesco Canepa and Valentina Za; Editing by Susan Fenton)
