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EU lawmakers curb bank regulators' power over mergers

European Union lawmakers passed a measure to fight protectionism in financial services by reining in regulators' power to block takeovers.

The measure approved today by the European Parliament in Strasbourg, France, specifies criteria and deadlines for judging financial mergers, in place of regulators' blanket authority to defend the safety of markets. EU governments plan to give final assent at a March 27 meeting of finance ministers. The initiative responds to EU fights with Italy and Poland over regulators' resistance to acquisitions by foreign banks.

The 27-nation EU has had 65% fewer deals than the US among banks, insurers and securities firms since the start of 2005, according to Bloomberg data. The law „will make it easier for companies to target banks outside their home markets, and that's good for banks and for banking shares,” Mamoun Tazi, an analyst at Man Securities in London, said in an interview today. „What you want is a wide- open market, like in the US.”

The EU law would let supervisors reject a deal only due to the acquirer's poor reputation or financial weakness, inability of the combined companies to abide by rules such as capital requirements, or a risk of money laundering or terrorism financing. Current law gives regulators broader authority to protect „sound and prudent management” of banks. „This directive we will remove the ambiguity,” Charlie McCreevy, who proposed the measure as EU financial-services commissioner, said in a statement praising the vote. „It is imperative that legitimate business decisions are not frustrated by overzealous authorities or by political interference.”

The measure would set a deadline of 60 working days for financial merger decisions. Regulators could get an extra 20 days to request more information, or 30 days if the acquirer comes from outside the EU. The law now permits open-ended extensions. Those deadlines are an increase from the original proposal's base period of 30 days, as a compromise with national governments. Still, lawmakers held to the set list of criteria, which some regulators had criticized as too narrow to ensure protection of financial markets.

„We had feared there would be a push to reintroduce a degree of discretion, but the parliament has kept the scope narrow,” Robert Priester, the European Banking Federation's head of financial markets and banking supervision, said in an interview before the vote. „We can be happy about the outcome.” The European Commission, the EU's executive agency, proposed the measure in September after complaints from executives including Rijkman Groenink, CEO of ABN Amro Holding NV, that regulators were abusing their powers to protect domestic banks. ABN Amro, the largest Dutch bank, and Spain's Banco Bilbao Vizcaya Argentaria SA fought with the Bank of Italy over attempts to buy lenders in the country. ABN Amro prevailed only after the bid of an Italian rival fell apart and Bank of Italy chief Antonio Fazio resigned amid a criminal probe over handling of the case. While BBVA lost out in its bid, the Spanish bank's target ended up in the hands of BNP Paribas SA of France.

The commission has closed a legal complaint against Italy after a shakeup of bank merger rules there. The EU agency is still weighing legal action against Poland for forcing UniCredit SpA of Italy to sell branches, as part of a recent acquisition. The Polish government argues it's holding the Italian lender to a 1999 agreement not to buy more banks in the country. The EU law „will, of course, not stop protectionism by regulators entirely. There are other barriers that regulators, such as the Poles for example, can and do put in the way,” John Tattersall, a partner at the financial-services practice of PricewaterhouseCoopers in London, said in an e-mailed comment. The initiative „is nevertheless a significant step forward to a single market in financial services, and to the provision of lower cost and more attractive banking services to Europe's banking customers,” Tattersall said.

EU studies also have cited language, local consumer protection rules and other hurdles to banks entering new markets in Europe. The commission plans to renew a push today for separate legislation on consumer lending. Financial companies in the EU's 27 current countries have been part of 970 combinations worth $294.4 billion since the start of 2005, compared with 1,604 deals worth $306 billion in the US over that time, Bloomberg data show. (Bloomberg)