The introduction of the euro is set radically to transform the face of banking across Europe and could present opportunities for investors.
Many analysts suggest that a single currency should ideally be supported by a single banking system. And while this may be some considerable time away from being realised, the consensus is that Europe will increasingly have fewer banks.
Merger mania has already taken hold with new unions changing the balance of power throughout the euro zone.
Last week came news of a link up between Banco Santander and another Spanish bank, BCH, to create a new banking force. The merged entity has 20 per cent of the Spanish retail banking market and is next expected to seek out acquisitions in Portugal.
Analysts forecast that the Spanish merger would have a domino effect. But few foresaw that an even bigger merger was coming down the tracks this week.
On Monday, Societe Generale announced a bid for Paribas in France, moving the combined operation to third biggest in Europe in terms of assets.
The knock-on effect of the merger trend should provide opportunities for investors.
The French merger is a logical move, as France has long lagged behind its European neighbours in this regard.
Most international stockbrokers suggest French bank stocks are relatively cheap at the moment and have the potential to provide good upside for investors. At current levels French banking stocks have been trading 30 to 40 per cent cheaper than their counterparts elsewhere in Europe, although they are comparatively as profitable. The euro will be broadly positive for French banks and that coupled with wide-scale restructuring should support share price growth in the medium term, according to analysts. The French banking sector has gained almost 50 per cent in the past three months, outperforming the overall index by 20 per cent. The main bank stocks on the Paris bourse will now be Banque Nationale de Paris (BNP) and the combined Societe Generale/Paribas, both offering exposure to the French retail banking market. Before the merger news, both received strong buy recommendations from ABN-Amro and Dresdner Kleinworth Benson and BNP rose in the wake of the announcement on speculation that it would be next to receive an offer.
Credit Commercial de France is also popular with investors as it is constantly the subject of takeover speculation, keeping the share price on an upward trend. It is pricey at current levels and is now viewed as a stock to hold rather than buy. Paribas is also tipped as a buy by ABN-Amro. German banks are operating in a less favourable economic environment and are concentrating their energies on making acquisitions in higher growth economies to boost their fortunes.
One of the biggest German banks, Deutsche Bank, was recently rumoured to be considering a bid for AIB Bank. But this speculation was overtaken this week by market rumours linking the Irish bank with Lloyds TSB. This prompted a roller coaster ride for banking stocks generally and AIB shares in particular.
"Deutsche Bank is more focused on Italy than Ireland and would be more likely to look at BCI Unicredito than AIB," according to Mr Morris. The acquisition of AIB - which has a stock market valuation of €14.5 billion (£11.42 billion) - would not constitute a "sensible" use of its equity, he says.
The only buy recommendation issued by ABN-Amro in Germany is for DePfa Bank, with the benefits of a corporate restructuring expected to be felt there this year. It is advising investors to sell Dresdner Bank because a poor performance from its investment banking operations is expected to hold the share price back in 1999.
The Italian banking sector, by comparison, is thriving with all of the analysts highlighting opportunities for investors.
"Italy has everything going for it. While it was a dreadful place to invest a couple of years ago, the banking sector has been turned around," according to Mr Morris. Italian banks have universally tackled the industry's cost base, but the most dramatic development has been the huge switch by investors from deposits into institutionally managed equity funds which yield lucrative earnings and commissions for the sector.
Profits at many of the major banks have in some cases tripled as a result, with forecasts for a continuing explosion in earnings over the coming years. Consolidation will also remain the major issue for the sector with a possible merger between BCI and Banca di Roma the subject of constant speculation.
Dresdner Kleinworth Benson is very positive about the Italian banks in general. Mr Morris says it is advising clients not to sell any Italian banks and is recommending Unicredito as a buy.
ABN-Amro also likes Unicredito, and is also recommending Banca Intesa, BCI and Sao Paolo-IMI.
Elsewhere in the euro zone, the Spanish banks are facing a difficult period, with domestically exposed banks expected to find it hard to improve profitability. Those with overseas exposure will have to contend with write-offs and/or the creation of additional provisions for their troubled Latin American operations.
The most favoured banking stock in Spain is Argentaria which is implementing aggressive cost containment measures. ABN-Amro suggests that Argentaria is taking the necessary steps to become one of Spain's leading banks in terms of profitability, management, asset quality and efficiency.
