Unicredit-Commerzbank, a merger that would benefit Europe

Unicredit became a European player in 2005 by acquiring a German bank, Hypovereinsbank, (HVB), with significant subsidiaries in Austria and Eastern Europe.

When Unicredit’s intentions became clear, a spokesperson for the German Ministry of Finance declared, “The prospect of consolidation in the banking sector is welcome. In principle, I can say that cross-border mergers and corresponding consolidation movements in domestic markets are certainly not negative for the consolidation of the European banking sector.”

The Italian bank proved it had no predatory intentions, the deal was completed, and until 2010, the Chairman of the Unicredit Group was a German, Dieter Rampl.

Now that Unicredit has increased its stake in Commerzbank to 21% and is seeking approvals to raise it to 29.9%, just below the threshold that would trigger a takeover bid, CEO Andrea Orcel has stated that the HVB acquisition could serve as the model for the Commerzbank operation. This time, however, the conditions seem different. Chancellor Olaf Scholz has warned against hostile “takeovers,” and Stefan Wittmann, a workers' representative on Commerzbank's supervisory board, has raised concerns about a two-thirds reduction in staff.

The Unicredit-Commerzbank merger, however, is of great importance to the entire European Union—much more so than the 2005 deal. It would create an institution that is no longer merely European but fully pan-European, bringing the system closer—from the bottom up—to the ideal of a banking and capital markets union that politics struggle to achieve. The institution would have roots both in Italy and Germany. Given this prospect, German resistance should fade, and recent statements could be interpreted as part of a negotiating stance.

There are two main concerns, one of which is unfounded, and the other can be overcome through negotiations.

The first concern stems from the fact that Unicredit holds a large amount of Italian public debt (estimated at around €40 billion), and thus, German savers could end up bearing the risk associated with Italy. This appears to be an almost primal prejudice, as Germans oppose any excess debt. But it seems to be an unjustified bias. Unicredit is an extraordinarily solid bank with top-tier management and one of the highest capital adequacy ratios in Europe. It operates in a regulatory framework focused on stability. The notion that Unicredit could become insolvent, or that Italian government bonds might not be paid, and that German depositors would then “foot the bill” for the Italian public debt on Unicredit’s balance sheet, is out of context and, one might say, disrespectful or the product of a simplistic (populist?) narrative.

Certainly, Italy has a duty to manage its public debt, especially to avoid spending on interest the money it could invest in education, healthcare, and the environment. But this should not be confused with the risk of a bank's insolvency.

The second concern is the potential transfer of Commerzbank’s know-how from Germany to Italy. This fear is similar to job loss concerns, but it finds no evidence in Unicredit’s behavior in Germany during nearly two decades of presence in the country.

It is clear that if the deal goes through, some changes will occur, starting with the governance of Commerzbank and Unicredit. The center of gravity of the Italian group will shift even more towards Germany, but the rest will depend largely on negotiations between the parties and their ability to create something new. Something profoundly European. Scholz and the unions’ opening stance is rather tough, but it could indeed be an opening—a prelude to complex negotiations, with a good chance of a positive outcome. Not just for the two banks, but for Europe as a whole. Thinking positively, with this deal Europe would finally start to take shape. Hence, all doubts, fears, and resistance are surfacing.