FRANKFURT, Sept 19 (Askume) – Italy’s second-largest bank UniCredit already owns a 9% stake in Commerzbank and is seeking permission to raise its stake to 29.9%, sources told Askume, adding that it would be open to a full takeover of the holdings.
However, UniCredit (CRDI.MI) received approval from Commerzbank(CBKG.DE) Anything above 10% requires approval from the euro zone’s biggest banking supervisor, the European Central Bank.
The ECB’s role in this process is summarised below.
When will the ECB intervene?
If shareholders want to buy 10% or more of a regulated lender, they need ECB approval. There are additional limits of 20%, 30% and 50%. However, the buyer can apply to acquire any stake and can therefore skip the mid-term review if he has already received approval for a larger stake.
What does the ECB investigate?
UniCredit will have to inform the ECB about its ultimate goals, and the regulator will evaluate its proposals on that basis.
It examines factors such as the buyer’s reputation, the quality of the board members it appoints, the buyer’s financial position and the target’s ability to comply with regulatory requirements.
The criteria leave some leeway, but essentially the ECB must decide whether UniCredit is able to acquire Commerzbank and maintain its financial strength, and whether it can create a stronger group.
UniCredit is a well-capitalized bank with ample liquidity and solid profitability. Despite a generous dividend and share buyback program, its common equity tier 1 (CET1) capital ratio is still 16.2%, well above its target of 12.5%-13.0%.
Will the ECB support the merger?
It’s hard to say without knowing UniCredit’s specific goals. But there are signs that the ECB might support it if structured properly.
The ECB has repeatedly said that cross-border mergers are desirable given the inefficiencies and high costs of the euro zone banking sector. Eurozone banks also lag behind large US banks.
“Many officials anticipate cross-border integration and that will be very interesting to watch in the coming weeks,” European Central Bank President Christine Lagarde said last week.
Bundesbank President Joachim Nagel has so far remained neutral but has outlined the requirements for support.
“We need stronger and stronger banks so that businesses can finance their operations going forward,” Nagel said this week.
“If a merger is likely to occur, it will be important to create a competitive entity that can best perform this function.”
What do past mergers tell us?
In the biggest banking deal so far this year, the European Central Bank approved BBVA’s 12 billion euro ($13.4 billion) acquisition of smaller Spanish rival Sabadell SABE.MC .
Winning the ECB’s backing is not the biggest hurdle facing UniCredit, but a takeover of Commerzbank would have far-reaching political ramifications as it would result in Germany, Europe’s largest economy, losing control of its second-largest bank.
How long does this process take?
The ECB has 60 days to approve the request, which can be extended by 30 days. This process usually takes most of the time, so a decision is unlikely to be taken quickly.
Who makes the decision?
The ECB’s supervisory board, made up of representatives from all euro zone member countries, would have to sign off on any agreement, while the rate-setting governing council would also have to go through a no-objection process.
