A potential deal to take over Germany’s Commerzbank from Italy’s UniCredit sparked a political and economic firestorm, with German chancellor Olaf Scholz strongly opposing the move.
Concerns over economic and national independence are at the forefront as UniCredit increases its share in Commerzbank, from 9% up to 21%.
Andrea Orcel is the CEO of the Italian bank. The Italian bank plans to further increase its stake, aiming for up to 29,9%.
Scholz said to Reuters, on Monday at the end of a trip to New York that “hostile takeovers and unfriendly attacks are bad for the banks. That is why the German Government has clearly positioned themselves.”
The move is a turning point in long-simmering tensions about European bank consolidation, especially when they involve cross-border mergers.
The deal is facing significant political opposition, as the German government has refused to back the acquisition.
A German official said to the Financial Times: “We don’t support a takeover and have told UniCredit this.”
National sovereignty and strategic interest
Germany is deeply concerned about the possibility of losing its control over an important financial institution.
Commerzbank is a vital part of the German economy. It lends to Mittelstand companies, which are small to medium-sized businesses.
UniCredit could suffer serious consequences if its operation is disrupted, for example, by a change in direction or management.
Commerzbank’s executives have warned that the merger with UniCredit may undermine lending to Mittelstand firms, which could threaten Germany’s backbone economy.
Friedrich Merz expressed dismay at the possibility of the takeover. He called it “a disaster for the German Banking Sector.”
Sein remarks highlight the wide-ranging political opposition to the agreement, which cuts across all parties and union interests.
This is a national issue for many Germans.
Berlin’s opposition and UniCredit’s ambitions
UniCredit’s interest in Commerzbank forms part of Andrea Orcel’s broader strategy to position Italian lender UniCredit as a European bank giant.
Orcel sees UniCredit being used to consolidate Europe’s fragmented banking industry, and the Commerzbank merger could be a catalyst for further consolidations on the continent.
The first major cross-border deal between banks in Europe after the financial crisis could be a successful acquisition. This would lead to an avalanche of mergers.
This vision is complicated by Germany’s resistance to the takeover.
After initially acquiring 9% of Commerzbank–half of which came directly from the German government–UniCredit has met resistance from Berlin at every turn.
According to FT, a person who is familiar with the management of Commerzbank said that Orcel’s recent move appears at odds with Orcel’s earlier statements that he wouldn’t pursue a hostile acquisition.
The German government had originally planned to reduce its 12% holding in Commerzbank but has now backed down in response to the domestic opposition against a takeover.
Berlin’s decision to block further talks effectively forced UniCredit into raising its stake, without the government’s backing.
Berlin, according to a government official, supports Commerzbank’s strategy of independence.
What is at stake in the Germany-Italy relationship?
UniCredit faces more than just political opposition. It also has to deal with regulatory barriers.
The bank will need to get approval from the European Central Bank before it can increase its stake above 10%. Even though the stake of 11.5% has already been purchased, the deal won’t be completed until the necessary approvals have been received.
UniCredit, should it succeed, would surpass the German Government as Commerzbank’s biggest shareholder. This would put even more pressure Berlin.
This takeover attempt not only has strained the relationship between UniCredit, and Germany’s government but also has created diplomatic tensions in Italy and Germany.
Antonio Tajani, the Italian Minister of Foreign Affairs, has defended UniCredit’s actions by stating that they are “more than legitimized.”
Bloomberg reports that officials close to the Prime Minister Giorgia Melons have expressed privately their frustration at Germany’s opposition and accused Berlin of hypocrisy.
Bloomberg cites Italian sources who are upset that Germany is promoting European integration, but rejects the idea of cross-border banking mergers within the EU.
According to the report, Orcel’s aggressive bid for the German Bank has also caused some frustration in Rome.
The two nations are concerned that this could have a negative impact on their relations.
European Banking Consolidation
The battle for Commerzbank may be a turning point in the consolidation of European banks.
UniCredit wants to be a leader of this consolidation. However, the attempt to buy Commerzbank will likely set precedents for other cross-border transactions.
If the deal is successful, other European banks may consider similar steps, consolidating an industry that was previously fragmented.
However, the UniCredit-Commerzbank saga also reveals the deep challenges facing such consolidation efforts, particularly when national interests are at stake.
Germany’s objection highlights the conflict between political concerns, national sovereignty and economic strategies, as well as a vision for a united European banking market.
While UniCredit pursues its strategic goals, it is unclear whether Orcel’s vision of an international banking giant will be able to overcome the fierce resistance presented by national interest and political opposition.
The battle for Commerzbank has not yet ended, but its result will be significant to the future of European financial markets.
As new developments unfold, this post German Chancellor Scholz Calls UniCredit’s Moves on Commerzbank ‘Unfriendly’ may be updated.
