President of the European Central Bank (ECB), Christine Lagarde, stated that cross-border banking mergers are desirable if such steps result in larger and more agile institutions, making European banks more competitive with their US and Chinese counterparts.
Shares of Commerzbank and UniCredit both soared to a 13-year high on Monday, indicating optimism surrounding the potential merger.
Responding at the European Parliament, Lagarde said: "Cross-border mergers – banks that can actually compete in scale, depth, and range with other institutions around the world, including American and Chinese banks – are, in my opinion, desirable," when asked about UniCredit’s potential takeover of Germany’s second-largest bank, Commerzbank.
She added: "Our role is limited from a supervisory point of view, and it is the job of the SSM to determine, based on this qualifying holding, whether the rules are respected and whether the criteria are satisfied – and that will be done if and when necessary." She further noted that the ECB "will do its job in verifying the proposal that will be put to it."
As the eurozone’s top banking supervisor, Lagarde and the ECB Governing Council will be required to oversee banking mergers and takeovers, ensuring that major shareholders are suitable for significant ownership in financial institutions.
UniCredit moves towards full takeover of Commerzbank
In early September, the Italian lender UniCredit acquired a 9% stake in Commerzbank after purchasing 4.5% from the German government, which had held 16.49% of Commerzbank’s shares since injecting €18.2 billion to rescue the bank during the 2008 Global Financial Crisis. The deal has reduced Berlin’s stake to 12%.
Ten days later, UniCredit raised its holdings in Commerzbank to 21% through a derivatives contract, effectively becoming the largest shareholder. Meanwhile, the Italian bank is seeking approval from the ECB to increase its stake to as much as 30%. A 30% ownership stake could trigger a mandatory full takeover under German law.
Both Commerzbank and the German government oppose the potential merger in favour of maintaining independence. Berlin has paused its share sales to fend off the potential takeover. German Finance Minister Christian Lindner said: "The style of UniCredit’s approach has unsettled many shareholders," adding that "this is why the German government has decided not to sell any further shares," during an event in Berlin last week.
UniCredit CEO Andrea Orcel has played a critical role in pursuing these deals. Reuters reported that Orcel plans to streamline UniCredit’s central offices, paving the way for dual headquarters in Germany and Italy, which could help reduce opposition from Berlin.
Fitch Ratings sees full takeover positive for UniCredit
Fitch Ratings has stated that UniCredit’s 21% holding in Commerzbank has no immediate effect on UniCredit’s BBB rating. However, the rating agency believes that a full takeover of Commerzbank would be positive for UniCredit, leading to an improvement in the assessment of the Italian lender’s
“operating environment, business profile, risk profile, and asset quality, and materially reducing its sensitivity to the Italian sovereign and economy.”
In a commentary released yesterday, Fitch said: “The potential takeover is consistent with UniCredit’s pan-European strategy and could transform the combined operations into the second-largest privately-owned bank in Germany by total assets, with leading positions in the competitive Mittelstand segment.”
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