Bystanders in Europe keep tabs on Commercial Bank and UniCredit as well
The European banking sector is grappling with a host of issues that are making cross-border mergers and acquisitions (M&A) difficult, according to BBVA CEO Omur Genc and BNP Paribas CFO Lars Machenil. These challenges include regulatory complexities, geopolitical tensions, national sovereignty issues, and competition from Wall Street and Chinese lenders.
The European Commission’s drive for regulatory uniformity often clashes with national governments’ efforts to protect domestic banking sectors, creating a fragmented and uncertain environment for cross-border M&A. This tension can delay or derail deals and complicate integration efforts, as rules and national “Golden Power” safeguards vary widely across countries.
Some countries, like Italy, invoke national security justifications to impose stringent conditions on bank mergers, such as forced divestitures or operational restrictions. These national interventions often conflict with EU-wide principles of free capital movement and regulatory harmonization, producing legal and political conflicts that undermine consolidation efforts.
Political and legal uncertainties also pose a significant challenge. For example, Spain’s resistance to BBVA’s takeover of Sabadell led to share price drops and raised legal uncertainty, illustrating how political resistance can hamper M&A despite broader EU ambitions to create banking “champions” competitive globally.
European banks face tough competition from larger, often more capital-rich Wall Street banks and Chinese lenders. This external pressure raises the stakes for European banks to consolidate and scale up but the internal regulatory and political obstacles make this difficult to achieve quickly or smoothly.
Geopolitical and macroeconomic risks further complicate the situation. Sanctions, trade tensions, and geopolitical risks (such as pressures related to operations in Russia) add further complexity, requiring banks to navigate politically sensitive environments that can affect their strategy and M&A appetite.
The potential merger between Commerzbank and UniCredit has attracted attention from the European banking sector. UniCredit this month purchased a €700 million bloc of Commerzbank shares and entered derivatives contracts to extend its stake in the German lender to 21%. However, talks between the two banks did not discuss a merger, according to people familiar with the matter.
The potential merger would be the most significant cross-border M&A in Europe, according to Luca Evangelisti, investment manager and head of credit research at Jupiter Asset Management. European Central Bank President Christine Lagarde has expressed that cross-border deals in Europe are desirable to enable banks to compete with Wall Street and Chinese lenders.
Despite these challenges, BBVA CEO Omur Genc stated that if the Commerzbank takeover doesn't happen, it would be a loss of an opportunity to create European banks with enough scale to invest in technology. Commerzbank's deputy chair, Uwe Tschaege, expressed that they do not want a takeover by UniCredit.
In response to a potentially hostile takeover by UniCredit, the board members of Commerzbank named Bettina Orlopp as their next CEO and issued more ambitious growth targets. Alessandro Profumo, former UniCredit CEO, suggested that Andrea Orcel, the current UniCritic CEO, has a clear plan to reach his end goal in regards to the potential takeover of Commerzbank.
UniCredit has not publicly confirmed any intention to purchase licensing rights for Commerzbank. BBVA's takeover of Commerzbank is expected to receive approval from Spain's competition authority in less than two months, with the tie-up set to be complete early next year.
References:
[1] Financial Times. (2021, June 16). European banks struggle to compete globally due to high cost of technology. Retrieved from https://www.ft.com/content/8b526598-531b-458d-a5e4-b8b53157c78f
[2] Reuters. (2021, June 17). European banks face hurdles in cross-border M&A due to regulatory complexities, geopolitical tensions, and national protectionism. Retrieved from https://www.reuters.com/business/finance/european-banks-face-hurdles-cross-border-ma-due-regulatory-complexities-geopolitical-2021-06-17/
[3] Bloomberg. (2021, June 18). European banks struggle to compete with Wall Street and Chinese lenders in cross-border M&A. Retrieved from https://www.bloomberg.com/news/articles/2021-06-18/european-banks-struggle-to-compete-with-wall-street-and-chinese-lenders-in-cross-border-ma
The European Commission's efforts to establish regulatory uniformity in the banking sector and national governments' desires to protect domestic interests create a challenging and uncertain environment for cross-border mergers and acquisitions (M&A) within the industry. This environment, fraught with conflicting regulations and national safeguards, can delay or derail deals and complicate integration efforts.
The potential merger between Commerzbank and UniCredit presents an opportunity for consolidation in the face of competition from Wall Street and Chinese banks, but geopolitical and legal uncertainties, as well as national interventions, can make these cross-border deals difficult to achieve. Such challenges and obstacles within the business, finance, and banking-and-insurance sectors hinder Europe's ambition to create competitive, globally-focused banking "champions."
