Unicredit credit cards are seen in front of a displayed Commerzbank logo in this illustration taken Sept. 20, 2017.Dado Ruvic/Reuters
The Italians are coming! They are poised to invade Germany and the Germans are afraid.
We are referring to this week’s surprise – and truly bold – move by UniCredit UNCFF, Italy’s second-biggest bank, to snap up 9 per cent of Germany’s Commerzbank CRZBY, the number two player in the European Union’s biggest economy, behind Deutsche Bank. UniCredit is led by the European banking industry’s ultimate alpha male, Andrea Orcel. He is a gambler, but luck, timing and financial clout are on his side.
The European Union wants transborder banking champions to compete on the global stage; putting UniCredit and Commerzbank together would be a good start. Just two days before UniCredit revealed its German lunge, Mario Draghi, the former president of European Central Bank and the former prime minister of Italy, released a 400-page Brussels-commissioned report that called the 27-country bloc fundamentally uncompetitive.
Among his recommendations was the formation of a capital markets and financial services union, which in effect means creating bigger commercial and investment banks to compete with the Wall Street giants, among them JPMorgan Chase and Bank of America. Collectively, the market value of Europe’s top 10 banks is less than that of JPMorgan, which is worth an astounding US$588-billion.
The union of UniCredit and Commerzbank could trigger similar takeover attempts throughout Western Europe, where the banking industry is highly fragmented and full of weak players, some of which have yet to recover from the 2008-09 financial crisis. The question is whether the German banking and political establishment will block Mr. Orcel’s attempt to buy one of their favourite banking sons and stall industry consolidation.
Already, the anti-UniCredit backlash has started. The Germany government is the biggest shareholder in Commerzbank, with 12 per cent. It knows that the bank is a key lender to the mittelstand, the many thousands of small- and medium-sized companies, generally family-owned, that collectively form the heart of the country’s “Made in Germany” engineering and manufacturing might. There is speculation that the government will demand that Commerzbank retain a German stock market listing and its own supervisory board (the separate board that acts as a check on management). Those requirements, if implemented, just might be enough to send Mr. Orcel packing.
Some members of Commerzbank’s supervisory board have vowed to fight the Italians, for fear that Commerzbank would be gutted in the inevitable drive for synergies – financial argot for cost-cutting – and decision-making power shifted wholesale to UniCredit. “You cannot hand this over to Milano,” Stefan Wittmann, a Commerzbank supervisory board member, told the Financial Times, referring to the Italian bank’s headquarters city.
Mr. Orcel, 61, is Italy’s, and one of Europe’s, best-known bankers and dealmakers and remarks such as Mr. Wittmann’s must make him laugh, since they imply that the Italians are not worthy of owning a venerable, though faded, German lender. Never mind that the Italians invented banking – Monte dei Paschi di Siena, formed in 1472, is considered the world’s oldest bank – and the country’s top banking names, including Intesa SanPaolo, are among the biggest and strongest in Europe.
Born in Rome, Mr. Orcel has had careers at Goldman Sachs, Merrill Lynch (where he was executive chairman of the investment bank) and UBS. He has been chief executive officer of UniCredit since 2021. Under him, the shares have tripled, giving UniCredit a market value of more than €60-billion (about $90.6-billion). That’s three times more than Commerzbank’s value, and more than twice as much as that of Deutsche Bank, the German market leader.
UniCredit would have little trouble buying all of Commerzbank. UniCredit has €6-billion (about $6.9-billion) in excess capital and trades at full book value, that is, assets minus liabilities are equal to the value of its equity. Commerzbank trades at half the book value of its own equity. UniCredit also owns a Bavarian lender, HypoVereinsbank, which it bought in 2005 and could be merged with Commerzbank.
UniCredit and Commerzbank, which received a €23-billion (about $34.7-billion) German state bailout during the financial crisis, have been circling each other for years. Mr. Orcel’s moment came last week, when Berlin announced it was planning to sell down its minority investment in Commerzbank. He nailed a 4.5-per-cent stake, a purchase that was not known until earlier this week, when the regulatory statements were published.
In the meantime, UniCredit had been secretly buying Commerzbank shares on the open market. For the total 9 per cent stake, it paid €1.4-billion (about $2.1-billion) and will no doubt seek authorization from the European Central Bank to go beyond 10 per cent – and keep going.
Before it picked up the Commerzbank shares, UniCredit bought 9 per cent of Greece’s Alpha Bank. Later it bought Polish banking services provider Vodeno and Aion Bank, a Belgian digital bank. They were all rounding-error-sized purchases, but they gave the market a clue that Mr. Orcel was looking to bulk up. It was only a matter of time before he went for a big target and Commerzbank is it.
He is evidently trying to build an empire. Commerzbank may try to stop him, but neither investors nor the EU technocrats who are obsessed with the bloc’s waning competitiveness will stand in his way. Mr. Orcel, it appears, has chosen the right moment to pounce. The European bank consolidation game is on.