LONDON (Reuters) - For years, pressure on European banks and asset managers to bulk up to better compete with U.S. rivals has been mounting. This year may mark a turning point as more boardrooms explore combinations, say executives, advisers and investors.

European banks have enjoyed a run of record profits and soaring shares in the past two years but they, like the region's asset managers, remain far smaller than U.S. peers after American institutions pulled further ahead.

Competition will intensify in 2025 as U.S. President-elect Donald Trump takes office, when he is expected to slash red tape for U.S. lenders.

"It seems certain M&A bankers will be very busy in 2025 with the banks where they work booking record revenues," said Patrick Lemmens, a fund manager at Robeco, who has invested in European banks for decades.

"We see clearly more deal activity in areas such as alternative investments and FinTech. Whether there will be an increase in Europe's M&A deals between banks will very much also depend on politics, even with deals in the same country," he added.

The biggest banking bids last year were unsolicited or hostile and their fate remains uncertain.

This includes BBVA's 12 billion euro play for Sabadell in Spain and UniCredit's 10 billion euro offer for Italian rival BPM Banco. Both deals are opposed by governments but should they go through, expect more moves at consolidation, say industry experts.

Asset managers, faced with intense competition from cheaper passive products that favour the bigger U.S. players, will explore more tie-ups or attract renewed interest from banks such as BNP Paribas' bid for AXA's fund arm, advisers say.

Allianz began talking to Europe's biggest asset manager, Amundi, about a potential tie-up with its Allianz Global Investors unit, but the talks then stopped, Reuters reported last month.

Conversations that were once a non-starter are now on the table and "everyone is talking to everybody else", said one senior Italian bank executive.

Already this year, in Italy, a market considered ripe for consolidation, Banca Ifis made a 298 million euro surprise offer for specialty lender illimity.

Last year saw the biggest annual deal volume of European financial services M&A since 2015, EY's latest industry analysis shows. Total deal volume hit 52 billion euros ($54 billion), including 10 deals worth more than 1 billion euros, EY said.

Experts say the likelihood of U.S. players swooping on lowly valued European rivals is also building, especially in asset management, with mid-sized active managers with weak share prices, such as Britain's abrdn and Schroders ( SHNWF ), seen as vulnerable.

"The U.S. firms have been growing faster than some of the European players, so that puts them in a stronger position," said Dean Frankle at Boston Consulting Group.

"It's much easier to consume something that's $400 billion (of client assets) if you're $2 trillion - you're probably not going to get indigestion."

NO CERTAINTY

Clinching deals, however, face the same hurdles of political opposition and regulatory challenges that hindered past dealmaking, executives and experts say.

UniCredit stunned markets in September when it built a stake in Germany's Commerzbank, triggering a political storm about losing a national champion. UniCredit may now wait for regulatory approval and a friendlier political climate before its next move.

Benjie Creelan Sandford, Equity Analyst at Algebris Investments, said falling rates - the European Central Bank is expected to cut by another 100 basis points in 2025 - should ease the immediate capital consumption M&A deals demand, but that plenty of challenges remain.

"...we would not overstate the likelihood of 'transformational' M&A for European banks in particular, with the absence of a full banking union still a hurdle to truly cross-border M&A," he told Reuters.

In Britain, big institutions Aviva, Barclays ( JJCTF ) and NatWest ( NWG ) are likely to focus on integration after making acquisitions, one senior UK banking executive said.

Regulators, long supportive of bigger institutions in the euro zone, are unlikely to stand in the way, and the ECB is expected to approve UniCredit's request to own up to 29.9% of Commerzbank.

Yet how the ECB treats banks' insurance holdings will be crucial in deciding the viability of deals including BNP's offer for AXA's unit and BPM's for Anima Holding.

The so-called Danish compromise treats banks' insurance holdings more favourably - making it cheaper for banks which qualify to buy fund managers. The ECB's top supervisor said last month that the ECB would apply it "case by case", but analysts are confident the compromise will hold, clearing the way for more transactions.

"What will most likely happen is the unexpected as often deals are announced nobody was expecting," Robeco's Lemmens added.

($1 = 0.9700 euros)

(Additional reporting by Valentina Za in Milan and Iain Withers in London, Editing by Louise Heavens)