UniCredit’s recent purchase of a significant stake in Germany’s Commerzbank ignited its share of controversy, but the Chief Supervisor of the European Central Bank has called for more cross-border bank mergers.
Though she did not specifically mention UniCredit or Commerzbank, the ECB’s Claudia Buch told attendees at a conference in Lithuania that “cross-border activities and mergers can provide opportunities to generate economies of scale and scope.”
Italy’s UniCredit initially acquired a 9% stake in Germany’s second-largest financial institution last month through an overnight transaction. The institution then leveraged derivatives to increase its stake to 21%. UniCredit has since petitioned the ECB for approval to acquire a 29.9% controlling stake in the company.
Drawing Criticism
The move drew criticism from observers who likened UniCredit’s purchase to a hostile takeover. Both the German government and rival Deutsche Bank have raised concerns, calling the move an unfriendly attack. Detractors of Unicredit’s purchase expressed concerns that a foreign bank might limit the credit available to German businesses and that UniCredit might falter if the Italian economy struggles.
Though the Italian economy has faced challenges, UniCredit has successfully amassed billions of euros for acquisitions. If the bank can pull of a merger with Commerzbank, it would be the largest cross-border bank merger in the EU since the financial crisis. The only real stumbling block in the lender’s plan could be securing approval from the ECB.
Consolidating Positions
Given the ECB’s stance on cross-border bank mergers and Buch’s recent comments, it seems unlikely that the central bank will reject UniCredit’s appeal. The ECB has stated that it applies the same criteria to evaluate cross-border mergers as it does for domestic transactions, primarily focusing on ensuring that the banks are on solid footing.
The ECB has long called for European banks to strengthen their positions through consolidation. The central bank has expressed concern that EU financial institutions have been so focused on their own countries that they have fallen behind their counterparts in the U.S. and China. However, cross-border bank mergers can be difficult due to country-specific regulations.