Italian Bank Takes Over German Bank

UniCredit has silently acquired a controlling stock position of Commerzbank shares, which had been anticipated by the market for years. But Germany is not impressed, so..

Takeover drama in Germany – the major Italian bank UniCredit has acquired over 21% shares in Commerzbank, the second largest German bank. UniCredit has now notified the German authorities that they are the largest shareholders and that they are willing and able to buy up to 25% and more. Such a position is enough for UniCredit to decide the future for Commerzbank, and UniCredit thinks a takeover is rife or long overdue. In modern business language it may be called a merger, but nobody is in doubt that the power balance is in the favor of the Italians in this case.

Headquarters of UniCredit in Milano, Italy. Di ThePhotoGraphIc - Opera propria, CC BY-SA 4.0

Chancellor Scholz is already commenting on the case - the Italian financial newspaper Il Sole 24 Ore:

“Hostile takeovers are not good for banks. Unfriendly attacks, hostile takeovers are not good for banks." This was stated by German Chancellor Olaf Scholz in New York in response to a question about UniCredit's increase in Commerzbank shares. "The government has positioned itself clearly and says openly: we believe that it is not appropriate in Europe and in Germany to proceed with unfriendly methods, without any spirit of cooperation and without making agreements on anything, to participate in a business transaction," he concluded.

However, it is well known that half of the shares bought by UniCredit earlier in September were bought from the German government itself in a transparent market deal. The participants also knows that Commerzbank’s market value is low, compared to similar banks. Commerzbank received the largest government support package during the financial crisis in 2008-9 and has had to be supported after that, as well, partly because they could not pay back the hefty government loans. Apart from Scholz, also the German bank employees’ union has protested loudly against the takeover. Some eyebrows were lifted elsewhere in Europe because in many ways, it is business as usual to merge banks across international borders. In this case, concerning two EU countries, it should be no big deal.

The German government supported Commerzbank during the global financial crisis with massive aid, which made the German state the largest shareholder in the bank with almost 25 percent. In 2008 and 2009, the state rescue fund invested 18.2 billion euros in Commerzbank, but only part of this could be repaid in the following years, so that the state still held 16.5 percent of the shares in the summer of 2024. (WirtschaftsWoche)

One of the main findings of the new Draghi report on the state of EU business and finance is that the EU common market for finance services is not large enough and not efficient enough to compete with the USA. So in many ways, this merger is exactly what the EU is calling for in order to obtain a more favorable position for European innovation and ability to support scaling up of innovative business such as the green transformation, electric cars etc.

There is some national pride involved, as the reverse transaction would probably not solicit any protests from Scholz. German buying Italian is less controversial, which is perhaps telling for the situation that Scholz finds himself in. He comes right out of having had to consider funding two other disasters, the Volkswagen issues with electric cars not selling well enough, and the Northvolt production problems leading to near bankruptcy. Both private companies that the German state is heavily involved in. The financial newspapers recommend a complete makeover of German industrial policy, deeming it unsustainable to dispense government subsidies and aid packages every time a larger business runs itself into trouble.

Germany has too many banks, over 1,500 banks with many more branches, more than three times France or Italy. Only 5 of those are among the 50 largest in Europe, which is far too little considering the importance of German economy. There are also different types of banks with each their own set of laws and rules, which makes the system inefficient.

In what looks like a business textbook case for rationalization, there are more than 575,000 Germans employed in banks, with around 375,000 in France.

Chancellor Scholz faces an uphill battle to modernize German banking, more or less like the rest of business and industry. Especially if he does not really want to go for it or rather wants to prevent it from happening.