UniCredit’s Interest in Commerzbank and Bundesbank’s Position

FRANKFURT (Reuters) – Any bank merger in Germany must create a competitive institution robust enough to support economic growth, Bundesbank chief Joachim Nagel said on Wednesday, just as UniCredit is eying a takeover of Germany’s Commerzbank (ETR:CBKG).

Italy’s second-largest bank took a 9% stake in Commerzbank last week, surprising German authorities and receiving a hostile reception from local management, who wish to fend off any takeover attempt.

It is now up to the European Central Bank (ECB) to decide whether to allow UniCredit to increase its stake, making any comment from the Bundesbank – whose representative sits on the ECB’s Supervisory Board – subject to close scrutiny.

“We need strong and robust banks so that companies can tackle and finance their future tasks,” Nagel told an event at Commerzbank in Frankfurt.

He emphasized that in cases of possible mergers, it is crucial that a competitive institution is ultimately formed to fulfill this role effectively, without referring specifically to either lender.

UniCredit is one of the best capitalized banks in Europe, with a common equity tier 1 (CET1) capital ratio of 16.2% at the end of the first half of the year, even after a generous dividend and share buy-back program. This suggests that UniCredit has the financial capacity to pursue a feasible takeover.

Nevertheless, any deal could be politically sensitive since Germany’s banking sector is dominated by Deutsche Bank and Commerzbank. The sale of Commerzbank to UniCredit would intensify competition against Deutsche Bank and place Commerzbank under foreign control, a potentially delicate issue for a government facing elections next year.

However, the ECB has consistently supported cross-border mergers to enhance European banking competitiveness, indicating that it is unlikely to block the deal if UniCredit can propose a plan that builds a financially sound mega-bank.