The European Central Bank appears to be moving closer to approving UniCredit’s takeover of Germany’s Commerzbank, according to an internal document reviewed by Reuters. The proposed €43 billion deal could create one of Europe’s largest lenders, but regulators are still raising questions about governance, capital strength and the difficult task of bringing the two banks together.
ECB Sees No Major Reason to Block the Deal
The European Central Bank’s preliminary assessment represents an important step forward for UniCredit as it seeks control of Commerzbank.
According to the internal document, the ECB found “no grounds to object” to the proposed takeover. However, regulators also expect the combination of the two major European banks to involve a “challenging and long-lasting” integration process.
The document was presented in July to the ECB’s Supervisory Board, which includes officials from the central bank and national regulators. The board considers the views of national supervisors before a final decision is made and later approved by the ECB’s Governing Council.
The takeover application was incomplete when the document was presented, but UniCredit submitted a full application in late July. A final review is expected in September or October.
UniCredit Builds a Powerful Position in Commerzbank
UniCredit has already built a roughly 48% stake in Commerzbank through its hostile takeover effort, valued at around €43 billion. The Italian bank’s push has faced resistance from Commerzbank management, employees and the German government, although some opposition has recently become less firm.
The German government has been particularly important in the dispute because it holds a 12% stake in Commerzbank following its support for the lender during the global financial crisis. Germany formally rejected UniCredit’s offer in June, pointing to concerns about the price and the Italian bank’s approach to the takeover.
ECB approval would remove the biggest regulatory obstacle facing UniCredit. The central bank has also supported greater cross-border consolidation among European banks as part of efforts to strengthen financial integration across the European Union.
German Regulator Raises Governance Concerns
Germany’s financial regulator BaFin has taken a more cautious view of the proposed combination.
According to the document, BaFin criticized what it described as UniCredit’s “aggressive and partially intransparent behaviour” during its effort to build its position in Commerzbank. The regulator also pointed to “weaknesses in checks and balances” at UniCredit and called for stronger governance.
Another concern is the hostile nature of the takeover itself.
BaFin believes UniCredit’s approach has damaged relationships with Commerzbank management, workers, unions and political stakeholders. The regulator said UniCredit would therefore need a credible strategy to rebuild trust if the takeover moves ahead.
UniCredit declined to comment to Reuters on BaFin’s concerns.
Integration Could Become the Biggest Challenge
Although the ECB recognizes many of the concerns raised by German regulators, its preliminary view is that they are not serious enough to justify blocking the transaction.
Some governance concerns have already been addressed through supervisory measures, including more detailed board records and stronger oversight. The ECB also said shortcomings related to anti-money laundering controls at UniCredit’s German subsidiary were being addressed.
Still, combining the banks could be complicated.
The ECB pointed to Commerzbank’s size, differences in corporate culture and tensions created by the hostile takeover. Cooperation between the two sides is already difficult, according to the document, increasing the execution risks associated with integrating their operations.
Those challenges could become particularly important because the proposed deal would rank among the European Union’s biggest banking transactions since the global financial crisis.
Capital Plans Remain Under Regulatory Scrutiny
The ECB is also examining UniCredit’s financial assumptions for the takeover.
UniCredit has assumed it can maintain a 12.5% capital ratio after taking a controlling 51% stake in Commerzbank, partly through lower payouts. Regulators are challenging those assumptions as part of their assessment, although Reuters reported that such scrutiny is routine and does not necessarily indicate opposition to the transaction.
The ECB also found that UniCredit’s integration plans lacked detail when the preliminary assessment was presented in July. The full application submitted later that month could provide regulators with additional information needed for their final review.
A Decision That Could Reshape European Banking
An ECB approval would bring UniCredit much closer to completing a takeover that could significantly change Europe’s banking landscape. With UniCredit already controlling roughly 48% of Commerzbank shares, the regulatory decision could determine whether the Italian lender can turn that position into full control.
Major questions remain about governance, capital levels, employee opposition and the ability to successfully integrate two large institutions. Yet the ECB’s preliminary finding that there are no material grounds to block the deal gives UniCredit an important regulatory boost.
With a final review expected in September or October, the next few months could decide the future of Commerzbank and set an important example for cross-border banking consolidation in Europe.
