The purchase of shares in Commerzbank by UniCredit shows that governments continue to have positions in their national champions. Selling these positions offers bank buyers a unique opportunity to strengthen their interests in foreign markets or enter new markets on a large scale.
From 2022, the combination of some Higher interest rates and benign asset quality dynamics has supported banks’ results, and we have seen an acceleration in public divestments of bank holdings acquired around the time of the global financial crisis (GFC), marking an important late milestone in the normalization of the sector after that period.
The global financial crisis marked a time of unprecedented turmoil for the financial sector, leading to the nationalization of several banks across 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 has been reduced to 15.99%), Commerzbank (12.11% German Government stake following sale of 4.49% stake to UniCredit in 2024), ABN AMRO in the Netherlands (40.5%), Banca 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 Volksbank and Belfius Bankrespectively, so the privatization schedule is more uncertain, although it remains the ultimate goal. Many other sales processes could be concluded by the end of 2025, provided market conditions remain favorable.
We welcome this divestment process, as we believe it will positively contribute 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 of government influences.
In our opinion, in the past large public holdings could have discouraged potential cross-border M&A, 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, the elimination of large public participation could facilitate cross-border consolidation of the sector.
UniCredit’s recent takeover of Commerzbank demonstrates that, despite the significant obstacles 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 a formal agreement has not yet been reached, this combination would significantly strengthen UniCredit’s competitive position in Germany, especially 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 important 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 overlapping branch networks limits cost synergies, apart from large investments to keep up with the digital banking and big data arms race.
Potential revenue synergies, such as expanding the reach of product distribution to a foreign target’s customer base, are subject to higher execution risk and tend to incur a discount. Financing synergies arising from the arbitrage of structural differences in national deposit markets are also subject to some uncertainty as long as risks (or perceived risks) to their fungibility in a crisis persist.
Nevertheless, Acquiring a well-established, risk-free franchise in a eurozone country could be attractive to institutions seeking to strengthen their business models Through greater geographic diversification, reduce the volatility of their results throughout the cycle and, therefore, reduce their global risk profiles.
We believe that The greatest strategic benefits would come from combinations that bridge the gap between the core and peripheral countries of the euro zone.either. The combination of a bank based in a country in the core of the European economic area and another in a country on the periphery would offer greater diversification benefits, reducing the risk profile of a bank given the greater exposure to different operating environments. This combination could also help dilute sovereign risk exposure and create opportunities to improve returns in countries where profitability is constrained by excess domestic savings.
Although it is difficult to quantify and incorporate into any prior analysis of synergies and profitability, we believe that this geographical and risk diversification could, over time, translate into better financing costs. From Scope’s perspective, this could lead to better ratingsas geographic 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 operationespecially in the absence of more direct financing benefits and capital synergies that could only arise with the completion of the European Banking Union.
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