The purchase of Commerzbank shares by UniCredit shows that governments continue to hold positions in their national champions. Selling these positions provides bank buyers with a unique opportunity to strengthen their interests in foreign markets or enter new markets on a large scale.
From 2022, the combination of certain Higher interest rates and favorable asset quality dynamics has supported bank results, and we have seen an acceleration of public divestments from bank stakes acquired at the time of the global financial crisis (GFC), marking an important late step in the normalization of the sector after that period.
The global financial crisis marked a period of unprecedented turmoil for the financial sector, leading to the nationalization of several banks in Europe. Although markets and economies have since recovered and regulatory reforms following the global financial crisis have significantly changed the sector’s risk profile, Governments have been slow to reduce their stakes in nationalized banks.
The reprivatization of several large banking groups is already well advanced: NatWest in the United Kingdom (public participation was reduced to 15.99%), Commerzbank (12.11% stake of the German government following the sale of 4.49% of the capital to UniCredit in 2024), ABN AMRO in the Netherlands (40.5%), Bank Monte dei Paschi di Siena in Italy (26.73%), Allied Irish Banks in Ireland (22%), and National Bank of Greece (8.39%).
The governments of the Netherlands and Belgium remain 100% owners of People’s Bank And Belfius Bankrespectively, the timetable for privatization is therefore more uncertain, although it remains the ultimate objective. Many more sales processes could be concluded by the end of 2025, provided that market conditions remain favorable.
We welcome this divestment process, as we believe it will contribute positively to strengthening market confidence in the sector.which can now operate independently after years of restructuring, de-risking and new regulation. Divestments will also allow institutions to pursue strategic changes and growth opportunities, with more efficient capital allocation and free from government influence.
In our view, in the past, large public holdings could have discouraged potential cross-border mergers and acquisitions, since in any transaction a candidate would have ended up with a foreign government as a key shareholder or would have had to negotiate with a foreign government the sale of its stake. Therefore, eliminating broad public participation could facilitate cross-border consolidation of the sector.
UniCredit’s recent takeover of Commerzbank demonstrates that, despite the significant hurdles associated with cross-border consolidation, institutions are still willing to participate if certain conditions are met. In this case, we believe that the national synergies derived from the possible merger in the German market of UniCredit Germany with Commerzbank increase the attractiveness of Commerzbank for the Italian group.
Although no formal agreement has yet been reached, the merger would significantly strengthen UniCredit’s competitive position in Germany, particularly in the corporate banking segment. This could serve as model for large French banks wishing to expand their presence in Italy and Belgiumwhere they could also extract significant cost synergies given their current national presence.
Aside from cases where a large cross-border group seeks to strengthen an existing foreign franchise, we believe the economics of international banking M&A remain complicated. The lack of overlap in branch networks limits cost synergies, apart from the significant investments needed to keep pace with the arms race in digital banking and big data.
Potential revenue synergies, such as expanding product distribution reach to a foreign target’s customer base, are subject to higher execution risk and tend to result in a discount. Funding synergies resulting from arbitrage of structural differences in national deposit markets are also subject to some uncertainty as long as risks (or perceived risks) regarding their fungibility in a crisis persist.
Nevertheless, Acquiring a well-established, risk-free franchise in a Eurozone country could prove attractive to institutions looking to strengthen their business model Through greater geographic diversification, reduce the volatility of their results throughout the cycle and thus reduce their overall risk profiles.
We believe that The greatest strategic advantages would come from combinations that bridge the gap between the central and peripheral countries of the eurozone.either. The combination of a bank based in a country located in the core of the European Economic Area and another in a peripheral country would offer greater diversification benefits, thereby reducing the risk profile of a bank given of its greater exposure to different operational environments. This combination could also help dilute sovereign risk exposure and create opportunities to improve returns in countries where profitability is limited by excess domestic savings.
Although difficult to quantify and integrate into any prior analysis of synergies and profitability, we believe that this geographic and risk diversification could ultimately translate into better financing costs. From Scope’s perspective, this could lead to better notesbecause geographic diversification and product diversification are key factors in our business model evaluations.
However, we recognize that this alone is likely is not sufficient to justify the payment of a premium for a cross-border transactionparticularly in the absence of more direct financial benefits and capital synergies that could only arise with the completion of the European Banking Union.
