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Commerzbank’s management has warned the German government that a potential multibillion-euro merger with UniCredit is a threat to businesses that make up the backbone of Europe’s biggest economy.
Executives at the German bank say a tie-up with its Italian rival could hobble lending to small and medium-sized Mittelstand companies, people with knowledge of internal discussions told the Financial Times.
A merger would be one of Europe’s biggest cross-border banking deals since the financial crisis.
UniCredit caught German bankers and politicians by surprise when it disclosed a 9 per cent stake in Commerzbank two weeks ago, after buying half of that from the government in an after-hours block trade.
This turned the Italian group into Commerzbank’s second-largest shareholder after the government, which still owns 12 per cent. The Milan-based bank said it would seek the necessary regulatory permission to raise its stake above 10 per cent.
The German government announced on Friday it would not sell any further Commerzbank shares “until further notice”, stressing that the lender’s strategy “is geared towards independence”.
Shares in Commerzbank have surged 24 per cent since UniCredit disclosed its stake on September 11. Shares in the Italian bank have risen 5 per cent over the same time.
Commerzbank accounts for 30 per cent of Germany’s export finance and is one of the largest lenders to the country’s SMEs with thousands of business customers. The bank has shared its concerns with government officials in Berlin, the people added.
After a merger, lending decisions and risk management capabilities may be moved abroad, undermining services to domestic clients that have been banking with Commerzbank for decades, they warned.
UniCredit told the Financial Times that these arguments misrepresented the Milan group’s inner workings, adding that it was a “pan-European” bank with “full self-standing legal entities” in all markets.
At its Munich-based subsidiary HypoVereinsbank “all day-to-day decisions are taken in Germany . . . not in Milan”, it said.
The German bank is concerned that a significant share of its more than 25,000 SME business clients may leave after a merger.
The people add that the Italian bank’s credit rating is lower than its rival, which in some cases could create problems for clients, for example when they have to provide a bank guarantee.
In addition, an enlarged lender may be forced to cut its lending to certain bigger clients because regulators are concerned about cluster risk or too much loan exposure to individual customers.
“When it comes to banking mergers, one plus one is not two,” argued one person familiar with the views of Commerzbank’s top management.
People close to Commerzbank executives added that a potential “Italy first” approach by UniCredit in times of financial stress could put German clients at a disadvantage and hurt the wider economy.
International groups have a habit of withdrawing to their home market in a crisis, which happened in the pandemic when US banks were accused of pulling back from lending to European companies.
Ministers in German Chancellor Olaf Scholz’s government appear to share Commerzbank’s concerns.
An official said on Friday that Berlin was in favour of open capital markets in Europe, but “other aspects” were also important, for example how lending to the Mittelstand “can be safeguarded in a crisis”.
UniCredit told the FT that the German corporate units of the lenders were “mirror images of each other” with a “minimal” overlap in clients and activities in “very different regions and somewhat different sectors”.
It said that “both banks have a similar history and tradition in the Mittelstand and we value and take seriously our role there”, adding that a tie-up would be “a very good combination” for German SMEs.
UniCredit chief executive Andrea Orcel told Handelsblatt in an interview that a tie-up could create “additional added value”.
In internal discussions, Commerzbank’s executives acknowledge that a merger with UniCredit may still look attractive for shareholders “on paper” because of the huge cost-cutting potential.
But the bank is adamant that it will take the interests of “all stakeholders” into account: shareholders, employees, clients and the wider German economy. Worker representatives and Germany’s mighty service sector union Verdi have rejected a merger out of hand.
The people familiar with Commerzbank’s discussions also point to the wretched history of banking mergers, most notably its ill-fated tie-up with Dresdner Bank during the financial crisis in 2008-09. This underlined the difficulties of delivering synergies.
Moreover, the integration could take years with a merged bank “preoccupied with itself” that could lead to neglect of the business, they argue.
UniCredit told the FT that the Italian bank was the result of about 100 mergers and had a record of successful integration that had turned it into “one of the most efficient and profitable bank[s] in Europe and in Germany”.
The German government and Commerzbank declined to comment.