A man takes shelter from the rain under an umbrella as he passes a euro sign in front of the former European Central Bank (ECB) building in Frankfurt am Main, western Germany.
Kirill Kudryavtsev | Afp | Getty Images
The recent takeover of European banks is widely seen as a potential turning point for the region, particularly the bloc’s imperfect banking union.
Italy’s UniCredit has increased pressure on Frankfurt-based Commerzbank in recent weeks by seeking to become the largest investor in Germany’s second-largest bank by taking a 21% stake.
The Milan-based bank’s acquisition of a 9% stake in Commerzbank earlier this month appears to have stunned German authorities over the potential multi-billion-euro merger.
“The long-running talks between Italy’s biggest lender, UniCredit, and Germany’s Commerzbank are a watershed moment for Germany and Europe,” David Marsh, chairman of OMFIF, a London-based research firm that tracks central banking and economic policy, said in written comments Tuesday.
Whatever the outcome of UniCredit’s raid on Commerzbank, Marsh said the incident would be “another huge test” for German Chancellor Olaf Scholz.
The embattled German leader is staunchly opposed to any apparent takeover attempt, reportedly describing UniCredit’s move as an “unfriendly” and “hostile” attack.
“The dispute between Germany and Italy over the Unicredit takeover, which Schulz has denounced as an unfriendly move, threatens to inflame relations between two of the EU’s big three,” Marsh said.
“There is still room for compromise,” he continued. “But the growing hostility in Italy and Germany threatens to derail meaningful steps toward completing the banking union and capital market integration that all sides say are needed to pull Europe out of recession.”
What is the European Banking Union?
Following the 2008 global financial crisis, the European Union’s executive announced plans in 2012 to create a banking union to strengthen lending institutions across the region and ensure better supervision.
This project, which was realized in 2014 when the European Central Bank assumed the role of banking supervisor, is widely known to be far from complete. For example, the absence of a European Deposit Insurance Scheme (EDIS) is one of several factors that are holding back progress.
European leaders, including Germany’s Scholz, have repeatedly called for greater integration of the European banking sector.
OMFIF’s Marsh said Germany’s opposition to UniCredit’s move against Commerzbank meant Berlin “now stands accused of favouring European banking integration only on its own terms”.
CNBC reached out to a German government spokesperson for comment, but there was no immediate response.
The logo of the German bank Commerzbank as seen from a branch office near the Commerzbank Tower in Frankfurt.
Daniel Rowland | AFP | Getty Images
Hostile takeover bids are not uncommon in European banking, but Spanish bank BBVA shocked markets in May when it made an all-stock bid for domestic rival Banco Sabadell.
The head of Banco Sabadell said earlier this month that BBVA was highly unlikely to succeed in a multibillion-euro hostile bid, Reuters reported. Still, BBVA CEO Onur Genç told CNBC on Wednesday that the deal was “going according to plan.”
Spanish authorities, who have the power to block mergers or takeovers of banks, have expressed opposition to BBVA’s hostile takeover bid, saying it could have detrimental effects on the country’s financial system.
European policymakers have been trying for more than a decade to establish a “genuine banking union,” and they’re still working on it, European Central Bank Governing Council member Mario Centeno said Tuesday on CNBC’s “Street Signs Europe.”
According to Brussels-based think tank Bruegel, the unfinished project means the intervention framework for banking crises remains an “awkward mix” of national and EU authorities and tools.
Asked whether opposition to banking union by leading politicians in Germany and Spain had been a source of frustration, the ECB’s Centeno said: “We have worked very hard to complete banking union in Europe. There are still some challenges that we all know.”
What happens next?
Thomas Schweppe, founder of Frankfurt-based advisory firm 7Square and a former Goldman M&A banker, said Germany’s decision earlier this month to sell a minority 4.5% stake to UniCredit – whether intentional or not – meant the bank was now “in discussions” for a potential takeover.
“We are proposing a European banking environment, and Germany supports strong European banks that are well capitalized and well managed,” Schweppe said Wednesday on CNBC’s “Squawk Box Europe.”
“If we are serious about this, I think we have to accept that European integration means that German banks will be the ones being taken over,” he added.
Asked for a timeline on how long the UniCredit-Commerzbank saga might last, Schweppe said it could take “months, if not a year, maybe longer.” He cited lengthy regulatory processes and the need for dialogue among all stakeholders to find a solution that “fits their fancy.”
