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UniCredit was always likely to lead the next wave of bank consolidation in Europe. With strong operations, a rising share price, ample capital and — in Andrea Orcel — a former M&A banker for a boss, the question was not whether it would swoop, but when and on whom.
That has now been answered. The Italian group has amassed a 9 per cent stake in Commerzbank — spending about €1.4bn — as a prelude to a possible tie-up. Commerzbank’s shareholders certainly expect one, at least going by the 18 per cent jump in the German group’s share price.
Cross-border M&A is a fraught political affair, as UniCredit well knows given previous attempts to take over Commerzbank. But the mood music this time is different. Europe is increasingly acknowledged to suffer competitively given its fragmented banking market, with lenders that lack scale.
The fact that UniCredit bought half its stake from the German government, which has held a slug since the 2009 financial crisis, suggests the bank’s overtures may not be unwelcome. Commerzbank chief executive Manfred Knof said on Tuesday that he would not seek another term when his contract expires in December 2025, and the group is apparently open to discussions about a possible tie-up.
Assuming the stars align for UniCredit, Commerzbank would make a good target.
The Italian group can easily afford it, given its excess capital and Commerzbank’s undemanding valuation. The German lender trades at only half the book value of its own equity. That means that even if UniCredit ended up offering a 30 per cent premium to Tuesday’s closing price for the remaining shares — for a total outlay of €19bn — and paying about half of that with cash, the combined entity’s core tier 1 ratio would still be comfortably above 13 per cent.
UniCredit, which owns HVB in Germany, also has the potential to wring out synergies from a deal. These might amount to 20 per cent of the target’s cost base, thinks Andrea Filtri at Mediobanca, for €720mn after tax. Add that to Commerzbank’s 2025 stand-alone net income of €2.5bn, and earnings would rise to €3.2bn. That would imply a near-17 per cent return on UniCredit’s €19bn investment.
On top of that, UniCredit should be able to run Commerzbank better, if HVB’s cost income ratio — which at 40 per cent is some 15 percentage points lower than Commerzbank’s — is any indication.
UniCredit’s move will have repercussions Europe-wide. German banks will fear the emergence of a stronger competitor. In Italy, a key predator has gone hunting elsewhere, leaving mid-sized lenders BPM, BPER and Monte Paschi to find other options.
This is simply the starting gun on the latest attempt to consolidate European banking. Regulators and politicians should, this time, allow the race to run its course.
https://www.ft.com/content/f55d3645-784c-412b-a33b-6bb41071a38d
