Morgan Stanley says more European banking M&A to come

By Quentin Webb

LONDON (Reuters) - European banking mergers and acquisitions (M&A) will continue at a rapid pace, as banks adjust to a lower-leverage world and strong lenders pick off weaker rivals, a leading sector banker said on Tuesday.

William Chalmers, head of European banks within Morgan Stanley's financial institutions group, said many banks needed to adjust their business models to survive now wholesale funding was more costly and less freely available.

"Looking forward to the next 18 or maybe even 24 months, I suspect that most financial institutions M&A bankers will be pretty busy," Chalmers told the Reuters Global Finance Summit in London.

"Deleveraging, consolidation and so forth are going to contribute to a reorganisation of financial assets between institutions -- banks, insurers, and hedge funds. That is going to lead to quite a lot of M&A," Chalmers said.

"I don't think I'd characterise the next 18 months as being emergency rescue deals, more strategic consolidation that is done at a slightly slower pace," he added.

While the credit crisis has prompted a 25 percent slump in global M&A, it has triggered a raft of crisis mergers among banks, with deals in the sector this year hitting a record $623 billion (400 billion pounds) by November 6, Thomson Reuters data showed.

"OUTSIZED PORTION"

Chalmers, who has advised on deals including HBOS's HBOS.L sale to Lloyds (LLOY.L), said stronger banks would buy weaker peers as the economy soured. "In all likelihood as we go in to a macro downturn that's a process that's going to continue."