What shopping for Commerzbank would imply for UniCredit — and the banking sector

UniCredit‘s transfer to take a stake in German lender Commerzbank is elevating questions on whether or not an extended awaited cross-border merger may 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 serious 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 chance 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 stated the Italian financial institution was capable of 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 provide to purchase out different traders in Commerzbank, the CEO instructed the Italian paper: “No, it might be an aggressive transfer.”

However analysts have welcomed the transfer by UniCredit, significantly as a result of a tie-up may spur comparable exercise in Europe’s banking sector — which is usually seen as extra fragmented than within the U.S., with regulatory hurdles and legacy points offering obstacles to mega offers.

To date, 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% to date this yr and added one other 3% on Wednesday.

Traders admire 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, stated in a analysis observe final week. In line with UBS, the ball is now in Commerzbank’s court docket.

Analysts at Berenberg stated in a observe final week {that a} potential merger deal, “ought to, in idea, have a restricted impact on UniCredit’s capital distribution plans.” They stated that whereas there may be “strategic benefit” in a deal, the quick monetary advantages is likely to be modest for UniCredit, with potential dangers from the cross-border deal diminishing a few of the profit.

David Benamou, chief funding officer at Axiom Different Investments, hailed Orcel’s choice to take a stake in Commerzbank as a “implausible transfer” that is smart due to the rise in German market share it might grant UniCredit.

As Commerzbank “missed on prices in Q2 [the second quarter], at present it is at a really low valuation, so the second [Orcel] stepped in, might be probably the greatest moments he may have,” Benamou instructed CNBC’s “Squawk Field Europe” final week.

When requested how imminent a takeover was within the brief time period, Benamou recommended it was doable, saying, “they’ll in all probability come to it.”

In line with Arnaud Journois, senior vice chairman of European Monetary Establishment Scores at Morningstar DBRS, UniCredit is already on its strategy 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 present operates.

“UniCredit has been very lively up to now two years, doing just a few focused acquisitions … So that is the subsequent logical step,” Journois stated.

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 traders by way of share buybacks and dividends.

Analysts are hoping {that a} transfer by UniCredit will encourage extra cross-border consolidation. European officers have been making an increasing number of feedback in regards to the want for greater banks. French President Emmanuel Macron, for instance, stated in Might in an interview with Bloomberg that Europe’s banking sector wants better consolidation.

“European international locations is likely to be companions, however they’re nonetheless competing typically. So, I do know that from an EU standpoint — policymaker standpoint — there may be urge for food for extra consolidation to occur. Nevertheless, we expect that there are just a few hurdles that make that troublesome, particularly on the regulatory aspect,” 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 response to Reint Gropp, president of the Corridor Institute for Financial Analysis.

“The German banking construction is lengthy overdue for a consolidation course of. Primarily, 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 “massive candidate for a takeover” within the German banking sector as a result of a lot 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 troublesome takeover targets.

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 claimed to be mounting its personal protection technique within the wake of UniCredit’s stake.

Filippo Alloatti, head of financials at Federated Hermes, stated Deutsche Financial institution is unlikely to current a robust rival provide for Commerzbank.

With a CET1 ratio of 13.5% in comparison with its goal of 13%, Deutsche Financial institution is fairly “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 not actually afford” a takeover, Alloatti stated.

Nevertheless, Deutsche Financial institution may placed on a “courageous face,” Alloatti recommended, and take into account one other goal reminiscent of 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 stated, talking in regards to the potential for additional consolidation within the sector. “In the event that they [UniCredit] are profitable, then in fact, different administration groups will research this case,” he stated, 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 unexpectedly.

“However possibly we want a daring transfer to impact any modifications in any respect within the European banking system, which is lengthy overdue,” he stated.

In feedback reported by Reuters, Commerzbank’s Chief Govt 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 tip of 2025. German newspaper Handelsblatt reported that the board is likely to be contemplating an earlier change of management.

The supervisory board at Commerzbank will meet subsequent week to debate UniCredit’s stake, folks aware of the matter who most well-liked to stay nameless instructed CNBC. There aren’t any plans to interchange Knof as quickly as that assembly, the sources added.

– CNBC’s Annette Weisbach, Silvia Amaro and Ruxandra Iordache contributed to this report.