...Profitability and Capital Drive M&A: Changes in the regulatory framework in the context of a highly competitive business environment with low interest rates will exert increasing pressure over Spanish banks' earnings, particularly for the seven regional banks. This, together with more stringent capital requirements, may prompt further sector consolidation. Regional banks with less-diversified and smaller-scale businesses and, in some cases, weaker financial metrics are the most likely to be targets in the consolidation process. Gradual, Medium-Term Process: Bankia S.A.'s acquisition of Banco Mare Nostrum S.A. expected in late 2017 and Banco Popular Espanol S.A. sale to Banco Santander, S.A. in June as part of its resolution signal a new wave of sector consolidation. We expect further mergers and acquisitions (M&A) to result from increased capital pressures due to the first adoption of IFRS 9 from 1 January 2018, the full transitioning of regulatory capital deductions and from the cost of...
