Mergers and acquisitions (M&A) are responsible for remodelling the Top 25 western European banks in this year’s listings. As ABN AMRO is consolidated onto the balance sheets of its three purchasers, it disappears from our rankings, while RBS, Santander and Fortis all move up the table.

RBS vaulted over Crédit Agricole to take second place in the region, and surged to third in the world from eighth last year. Santander remained fourth in Europe and rose just one place in the global rankings, but its Tier 1 capital climbed by almost 12%. Fortis was the most striking ­immediate beneficiary, leaping nine places in Europe and 10 worldwide, as its Tier 1 capital expanded by more than 50%.

Merger activity also accounted for a new entrant to the Top 25, as the combination of Intesa and SanPaolo in Italy – 43 and 46 respectively in last year’s global rankings – pushed the new entity to 14 in western Europe and 25 worldwide. The only other new entry is Spain’s largest ­savings bank, La Caixa of Barcelona, following the flotation of several strategic portfolio holdings, such as Criteria CaixaCorp. Tier 1 capital ended the year more than 55% higher, lifting the bank to 35 in the global rankings, from 68 last year.

Aside from ABN’s removal, the only bank to depart the Top 25 was Denmark’s Danske Bank, as its Tier 1 capital fell by 12.4% (but less than 3% in dollar terms) after a ­statutory capital deduction for its insurance subsidiary Danica Pension.

The only bank remaining in the Top 25 that saw a decline in Tier 1 capital in dollar terms was Switzerland’s UBS, following its well-publicised write-downs on subprime exposure. Part of the capital injection to repair the balance sheet took place this year and will therefore be factored into next year’s rankings. The bank descended from 11 in western Europe to 19 and, in the process, was overtaken by Credit Suisse as the largest Swiss bank by capital.

Elsewhere, the Top 25 rankings are little changed – Société Générale’s losses from ‘rogue trader’ Jerome Kerviel and subsequent capital raising also occurred too late to affect this year’s rankings. There were much larger moves outside the Top 25, including WestLB’s slide by nine places on a 24% decline in Tier 1 capital, due to its own subprime losses.

German banks overall still managed to increase profits as a percentage of capital, to 7.47% in 2007 from 4.67% in 2006 – but this remains far behind the other large European economies, owing to low profitability in the Landesbank and savings bank sectors. Meanwhile, Italy hurdled Spain and the UK to become the most profitable banking sector of the big five European economies, at 23.3% of capital.

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