The Commerzbank constructing (second from proper) in Frankfurt am Most important, western Germany, on Sept. 25, 2023.
Kirill Kudryavtsev | Afp | Getty Photographs
UniCredit‘s transfer to take a stake in German lender Commerzbank is elevating questions on whether or not a protracted awaited cross-border merger might spur extra acquisitions and shake up the European banking sector.
Final week, UniCredit introduced it had taken a 9% stake in Commerzbank, confirming that half of this shareholding was acquired from the federal government. Berlin has been a significant shareholder of Commerzbank because it injected 18.2 billion euros ($20.2 billion) to rescue the lender through the 2008 monetary disaster.
UniCredit additionally expressed an curiosity in a merger of the 2, with the Italian financial institution’s CEO Andrea Orcel telling Bloomberg TV that “all choices are on the desk,” citing the likelihood that it both takes no additional motion or buys within the open market. Commerzbank has given a extra lukewarm response to the merger proposals.
Orcel mentioned the Italian financial institution was in a position to purchase 4.5% of the state’s stake in Commerzbank as a result of the federal government trusts UniCredit, Reuters reported Thursday citing native media. When requested if UniCredit would launch an unsolicited tender supply to purchase out different buyers in Commerzbank, the CEO instructed the Italian paper: “No, it could be an aggressive transfer.”
However analysts have welcomed the transfer by UniCredit, notably as a result of a tie-up may spur related exercise in Europe’s banking sector — which is commonly seen as extra fragmented than within the U.S., with regulatory hurdles and legacy points offering obstacles to mega offers.
Proper match for UniCredit?
Thus far, the market has responded positively to UniCredit’s transfer. Commerzbank shares jumped 20% on the day UniCredit’s stake was introduced. Shares of the German lender are up round 48% up to now this yr and added one other 3% on Wednesday.
Traders recognize the geographical overlap between the 2 banks, the consistency in financials and an assumption that the transaction is “collaborative” in nature, UBS analysts, led by Ignacio Cerezo, mentioned in a analysis observe final week. In line with UBS, the ball is now in Commerzbank’s court docket.
Analysts at Berenberg mentioned in a observe final week {that a} potential merger deal, “ought to, in principle, have a restricted impact on UniCredit’s capital distribution plans.” They mentioned that whereas there may be “strategic benefit” in a deal, the rapid monetary advantages could be modest for UniCredit, with potential dangers from the cross-border deal diminishing a number of the profit.
David Benamou, chief funding officer at Axiom Various Investments, hailed Orcel’s resolution to take a stake in Commerzbank as a “improbable transfer” that is sensible due to the rise in German market share it could grant UniCredit.
As Commerzbank “missed on prices in Q2 [the second quarter], at the moment it is at a really low valuation, so the second [Orcel] stepped in, might be among the best moments he might have,” Benamou instructed CNBC’s “Squawk Field Europe” final week.
When requested how imminent a takeover was within the quick time period, Benamou prompt it was potential, saying, “they may in all probability come to it.”
In line with Arnaud Journois, senior vp of European Monetary Establishment Scores at Morningstar DBRS, UniCredit is already on its option to changing into a number one financial institution in Europe.
He instructed CNBC’s “Avenue Indicators Europe” Wednesday that there was a “double logic” behind UniCredit’s transfer because it permits the Italian lender to entry each the German and Polish markets the place Commerzbank at the moment operates.
“UniCredit has been very lively previously two years, doing a number of focused acquisitions … So that is the following logical step,” Journois mentioned.
UniCredit continues to shock markets with some stellar quarterly revenue beats. It earned 8.6 billion euros final yr (up 54% year-on-year), additionally pleasing buyers by way of share buybacks and dividends.
What does it imply for the sector?
Analysts are hoping {that a} transfer by UniCredit will encourage extra cross-border consolidation. European officers have been making an increasing number of feedback concerning the want for larger banks. French President Emmanuel Macron, for instance, mentioned in Could in an interview with Bloomberg that Europe’s banking sector wants higher consolidation.
“European international locations could be companions, however they’re nonetheless competing generally. So, I do know that from an EU standpoint — policymaker standpoint — there may be urge for food for extra consolidation to occur. Nevertheless, we predict that there are a number of hurdles that make that tough, particularly on the regulatory facet,” Journois instructed CNBC.
A cross-border styled merger between UniCredit and Commerzbank can be extra preferential than a home merger between Deutsche Financial institution and Commerzbank, in keeping with Reint Gropp, president of the Corridor Institute for Financial Analysis.
“The German banking construction is lengthy overdue for a consolidation course of. Basically, Germany nonetheless has nearly half of all banks within the euro zone, that is considerably greater than its share in GDP. So any consolidation course of can be welcome now,” Gropp instructed CNBC’s “Avenue Indicators Europe” on Wednesday.
He famous that Commerzbank has all the time been a “huge candidate for a takeover” within the German banking sector as a result of many of the different banks within the nation are financial savings banks which can’t be taken over by non-public establishments, or cooperative banks that are additionally tough takeover targets.
Will Deutsche Financial institution swoop?
Deutsche Financial institution, which was nonetheless seen because the prime contender to take over Commerzbank following an abrupt collapse of preliminary talks in 2019, is alleged to be mounting its personal protection technique within the wake of UniCredit’s stake.
Filippo Alloatti, head of financials at Federated Hermes, mentioned Deutsche Financial institution is unlikely to current a powerful rival supply for Commerzbank.
With a CET1 ratio of 13.5% in comparison with its goal of 13%, Deutsche Financial institution is reasonably “restricted.” CET ratios are used to gauge the monetary energy of a lender. The German financial institution additionally has much less extra capital than UniCredit and subsequently “can’t actually afford” a takeover, Alloatti mentioned.
Nevertheless, Deutsche Financial institution might placed on a “courageous face,” Alloatti prompt, and think about one other goal comparable to ABN Amro. The Dutch financial institution, which was additionally bailed out through the 2008 monetary disaster by the state, has been the topic of acquisition hypothesis.
“We have been ready for this,” Alloatti mentioned, talking concerning the potential for additional consolidation within the sector. “In the event that they [UniCredit] are profitable, then after all, different administration groups will examine this case,” he mentioned, noting that there was additionally scope in Italy for home consolidation.
Gropp acknowledged that UniCredit’s CEO had made a “very daring transfer” that caught each the German authorities and Commerzbank abruptly.
“However possibly we want a daring transfer to impact any adjustments in any respect within the European banking system, which is lengthy overdue,” he mentioned.
What’s subsequent?
In feedback reported by Reuters, Commerzbank’s Chief Government Manfred Knof instructed reporters on Monday that he would take a look at any proposals from UniCredit consistent with the financial institution’s obligations to its stakeholders.
Knof knowledgeable the financial institution’s supervisory board final week that he wouldn’t search an extension of his contract which runs till the top of 2025. German newspaper Handelsblatt reported that the board could be contemplating an earlier change of management.
The supervisory board at Commerzbank will meet subsequent week to debate UniCredit’s stake, individuals acquainted with the matter who most popular to stay nameless instructed CNBC. There aren’t any plans to exchange Knof as quickly as that assembly, the sources added.
– CNBC’s Annette Weisbach, Silvia Amaro and Ruxandra Iordache contributed to this report.
