Smaller rivals' books are seen as prime targets
A new wave of consolidation is on the horizon for the UK banking sector, with major players poised to pursue acquisitions to enhance scale and improve efficiency. Analysts at JPMorgan Chase & Co. predict that larger UK banks will increasingly look to expand through mergers and acquisitions, taking advantage of favourable funding dynamics and narrowing margins.
“Consolidation is the natural path given the trajectory of margins,” wrote JPMorgan analysts led by Sheel Shah in a recent note to investors. The team highlighted NatWest Group Plc and HSBC Holdings Plc as particularly well-positioned to lead this consolidation trend, given their active interest in inorganic growth. On the other side of the equation, banks such as Metro Bank Holdings Plc and Bank of Ireland Group Plc were identified as potential acquisition targets, especially for their mortgage books. Challenger banks were also flagged as attractive options.
The backdrop for this anticipated M&A activity includes a combination of macroeconomic uncertainty and evolving profitability trends. Mortgage margins have declined, and analysts expect them to remain subdued. At the same time, household savings ratios are projected to stay elevated due to cautious consumer sentiment, which continues to boost bank deposit bases.
Larger banks stand to benefit from these conditions, as their more robust funding structures allow them to maintain competitiveness even as lending margins shrink. These factors are driving renewed interest in sector consolidation as a strategic lever for growth.
There are already signs of movement. According to the Financial Times, NatWest has explored acquiring TSB. Meanwhile, Metro Bank shares jumped recently following a Sky News report that Pollen Street Capital had approached the lender with a potential acquisition proposal.
The UK banking market has seen relatively limited consolidation compared to its European counterparts, but momentum is clearly building. Analysts expect further deal activity to follow as larger institutions seek greater scale, operational synergies, and access to new customer segments in a challenging lending environment.
