The recent build-up of Unicredit’s stake in Commerzbank drew attention towards the fragmented and home-biased European banking system, with regulators and experts expressing different views and opinions over a potential takeover. In this article, we aim to analyze the potential deal, understand possible synergies between the two banks, the regulatory environment in which such cross-border transactions take place, and what it could mean for the future of the European banking system, maybe representing the starting point of a consolidation process across the bloc.
Overview
In September, during the presentation of his report on the EU's economy, Former Italian Prime Minister and ECB President Mario Draghi once again stressed the importance of homogeneity in regulatory and operational frameworks to enhance the stability and competitiveness of European banks. Creating a banking union would allow financial institutions to operate seamlessly across borders, sharing risks and enhancing the system's stability. However, these benefits remain theoretical, as on a more practical level, issues like national interest, different regulatory frameworks, and opposing political views remain unsolved. Within this environment, the potential deal between Unicredit, and Commerzbank could be an important test case to truly understand the opportunities and challenges for cross-border mergers within the European banking system.
Unicredit, one of the largest Italian banking groups, with a strong footprint in Central and Eastern Europe has been exploring potential opportunities to expand and further improve its competitive standing across Europe. Since its foundation in the 90s, it has grown as a well-diversified financial institution, offering a wide range of services from retail banking to wealth management. Commerzbank, the second-largest bank in Germany, is known for its wide network of corporate clients, focusing its lending activities towards SMEs across the country. A potential deal would allow Unicredit to leverage Commerzbank’s strong network, reinforcing its position in the German corporate banking market. On the other hand, Commerzbank would gain new capital, shared resources, and the possibility to expand geographically. Italian government officials seem to be in favor of a potential deal, under the condition that the bank’s headquarters remain domestic. On the other side, the German government has publicly declared to be against a merger, as it does not want its second-largest bank to be potentially exposed to an Italian debt crisis, UniCredit being a major holder of Italian government bonds. As of now, Andrea Orcel, CEO of Unicredit, has remained relatively quiet, saying that the increase in the stake was just an investment and that in any case, he would not proceed with a hostile takeover. From the German side, Commerzbank has recently appointed Bettina Orlopp as the new CEO. The former CFO of the bank declared that they are solely focused on their standalone operations, but will evaluate any possibility for the future. According to Bloomberg, Orlopp said that before cross-border consolidation between financial institutions, there is the need for the right environment, establishing a single deposit protection framework, finalizing the banking union, and strengthening a single European financial market.
It is clear that there are contrasting views regarding a potential deal, and future developments will likely depend not only on the interests of the two banks but also on the actions of other influential stakeholders. Regulatory issues within the EU, which still lack a unified deposit insurance scheme or homogeneous banking system, will pose significant challenges to cross-border consolidation efforts. Furthermore, political and ideological divergences between Italy and Germany, fueled by concerns over national debt exposure and control over domestic financial institutions, place even more obstacles on the path of a potential merger. Especially with the rising popularity of right-wing parties in Germany, national interests and the desire to safeguard the local banking system are factors that can play an important role, as government officials could try to maintain financial sovereignty. Within this environment, any shift in EU regulation or in political leadership could significantly influence whether the deal will be sealed or not and under which conditions. In any case, the developments of the following months will help us understand better the potential future trajectory of the EU financial system.
In September, during the presentation of his report on the EU's economy, Former Italian Prime Minister and ECB President Mario Draghi once again stressed the importance of homogeneity in regulatory and operational frameworks to enhance the stability and competitiveness of European banks. Creating a banking union would allow financial institutions to operate seamlessly across borders, sharing risks and enhancing the system's stability. However, these benefits remain theoretical, as on a more practical level, issues like national interest, different regulatory frameworks, and opposing political views remain unsolved. Within this environment, the potential deal between Unicredit, and Commerzbank could be an important test case to truly understand the opportunities and challenges for cross-border mergers within the European banking system.
Unicredit, one of the largest Italian banking groups, with a strong footprint in Central and Eastern Europe has been exploring potential opportunities to expand and further improve its competitive standing across Europe. Since its foundation in the 90s, it has grown as a well-diversified financial institution, offering a wide range of services from retail banking to wealth management. Commerzbank, the second-largest bank in Germany, is known for its wide network of corporate clients, focusing its lending activities towards SMEs across the country. A potential deal would allow Unicredit to leverage Commerzbank’s strong network, reinforcing its position in the German corporate banking market. On the other hand, Commerzbank would gain new capital, shared resources, and the possibility to expand geographically. Italian government officials seem to be in favor of a potential deal, under the condition that the bank’s headquarters remain domestic. On the other side, the German government has publicly declared to be against a merger, as it does not want its second-largest bank to be potentially exposed to an Italian debt crisis, UniCredit being a major holder of Italian government bonds. As of now, Andrea Orcel, CEO of Unicredit, has remained relatively quiet, saying that the increase in the stake was just an investment and that in any case, he would not proceed with a hostile takeover. From the German side, Commerzbank has recently appointed Bettina Orlopp as the new CEO. The former CFO of the bank declared that they are solely focused on their standalone operations, but will evaluate any possibility for the future. According to Bloomberg, Orlopp said that before cross-border consolidation between financial institutions, there is the need for the right environment, establishing a single deposit protection framework, finalizing the banking union, and strengthening a single European financial market.
It is clear that there are contrasting views regarding a potential deal, and future developments will likely depend not only on the interests of the two banks but also on the actions of other influential stakeholders. Regulatory issues within the EU, which still lack a unified deposit insurance scheme or homogeneous banking system, will pose significant challenges to cross-border consolidation efforts. Furthermore, political and ideological divergences between Italy and Germany, fueled by concerns over national debt exposure and control over domestic financial institutions, place even more obstacles on the path of a potential merger. Especially with the rising popularity of right-wing parties in Germany, national interests and the desire to safeguard the local banking system are factors that can play an important role, as government officials could try to maintain financial sovereignty. Within this environment, any shift in EU regulation or in political leadership could significantly influence whether the deal will be sealed or not and under which conditions. In any case, the developments of the following months will help us understand better the potential future trajectory of the EU financial system.
The Potential Deal: timeline, key events and implications
UniCredit’s potential acquisition of Commerzbank is full of economic, political, and legal uncertainties, resulting in the deal spanning over the last few months.
On September 11th, 2024, UniCredit upgraded their stake in Commerzbank to 9% by accumulating 4.5% in a block sale from the German government. The Italian bank paid a premium of €13.20 per share costing them around €1.4 billion for this initial investment. Furthermore, on this same day, UniCredit CEO Andrea Orcel approached Commerzbank’s management, inviting them to participate in merger talks, greatly displaying UniCredit’s interest in acquiring a further stake in the German lender. Commerzbank and UniCredit shares climbed over 16%, due to the acquisition premium, and 0.7% respectively on the news.
On September 18th, 2024, UniCredit announced their plan to file an application with the European Central Bank, requesting approval to increase their stake in Commerzbank to up to 29.9%, which would nearly trigger a mandatory takeover under German corporate law. This move signaled UniCredit’s intent to become the main shareholder in Commerzbank, surpassing the German government’s 12% ownership (after selling 4.5% to UniCredit), which they accumulated during their €18.2bn bailout of the German bank during the 2008 Global Financial Crisis. The German government also previously stated at the beginning of September their intention to reduce its stake in Commerzbank, stating that the bank “has shown to be standing firmly on its own feet again”, providing an opportunity for UniCredit’s move. Commerzbank shares reached €15.85, a price not seen for 12 years, and UniCredit shares gained 0.6% upon this news. Regarding whether the ECB will approve of this plan, cross-border bank mergers are heavily favored as they are regarded as crucial boosters of EU global competitiveness and create a strong banking union, increasing financial sector integration within the EU. Thus the ECB is likely to look favorably upon UniCredit, who claim that a growing and competitive market in German banking is key to the economic success of both the German and European economy as a whole. Deutsche Bank, on the other hand, is looking to block this deal as a UniCredit takeover of Commerzbank could result in Deutsche Bank losing a large chunk of their market share in Germany.
On September 23rd, 2024, UniCredit announced its entry into financial instruments that relate to about 11.5% of Commerzbank shares, a move that increases their ownership in Commerzbank to about 21%, conditional on supervisory approval. UniCredit further mentioned that through work alongside Jeffries Financial Group, most of their potential stake has been hedged to mitigate the risk of Commerzbank’s share price declining, providing them full flexibility to maintain, decrease, or increase their shareholding. This move, which makes UniCredit the largest shareholder in Commerzbank, has received significant political backlash from members of the German government, such as Chancellor Olaf Scholz, who labeled UniCredit’s actions as an “unfriendly attack”, which was one-sided and lacking cooperation and consultation. Furthermore, Friedrich Merz, a candidate for Germany’s next chancellor, described a UniCredit takeover of Commerzbank as a “disaster for Germany's banking market”, amplifying the extent of the backlash from German politicians. These harsh words resulted in a nearly 6% and a 3.3% drop in Commerzbank and UniCredit shares respectively as investors began to reassess the chances of the ECB approving UniCredit’s request to increase their stake to 29.9%. The German government has also since announced that additional Commerzbank share sales would be suspended until further notice. Later, on October 25th, 2024, Commerzbank CEO Bettina Orlopp, stated that Commerzbank is committed to a standalone strategy, further reducing the probability of ECB approval, as further acquisition would surely be considered hostile.
UniCredit’s 21% acquisition of Commerzbank, with a potential increase in shareholding, displays the bank’s strategic goal to strengthen its presence in key European markets. Commerzbank, the second largest bank in the biggest European economy, will allow UniCredit to further enter into Germany and Poland’s large and highly lucrative corporate and retail banking sectors. UniCredit has already expanded into Germany through their acquisition of HypoVereinsbank and plans to merge Commerzbank with HypoVereinsbank, creating the largest bank in Germany. Additionally, UniCredit sees improved long-run profitability for both banks through operational synergies that can lead to cost reduction and improved efficiency, resulting in long-term gains for shareholders. Since both UniCredit and Commerzbank strongly focus their operations on corporate lending, they will be able to offer more competitive services by leveraging each other's market positions. UniCredit’s digital banking expertise can further aid Commerzbank’s operations by creating more efficient and attractive services. Acquiring Commerzbank will also allow UniCredit to diversify its portfolio, resulting in less concentration in Italy and more of an international presence. Thus, through this move, UniCredit will be able to construct an integrated European bank which will expand their geographic reach and customer base, allowing them to compete with other European banking giants such as BNP Paribas and Deutsche Bank, and potentially leading to more cross-border mergers as banks fight to expand and maintain their share in key markets.
UniCredit’s potential acquisition of Commerzbank is full of economic, political, and legal uncertainties, resulting in the deal spanning over the last few months.
On September 11th, 2024, UniCredit upgraded their stake in Commerzbank to 9% by accumulating 4.5% in a block sale from the German government. The Italian bank paid a premium of €13.20 per share costing them around €1.4 billion for this initial investment. Furthermore, on this same day, UniCredit CEO Andrea Orcel approached Commerzbank’s management, inviting them to participate in merger talks, greatly displaying UniCredit’s interest in acquiring a further stake in the German lender. Commerzbank and UniCredit shares climbed over 16%, due to the acquisition premium, and 0.7% respectively on the news.
On September 18th, 2024, UniCredit announced their plan to file an application with the European Central Bank, requesting approval to increase their stake in Commerzbank to up to 29.9%, which would nearly trigger a mandatory takeover under German corporate law. This move signaled UniCredit’s intent to become the main shareholder in Commerzbank, surpassing the German government’s 12% ownership (after selling 4.5% to UniCredit), which they accumulated during their €18.2bn bailout of the German bank during the 2008 Global Financial Crisis. The German government also previously stated at the beginning of September their intention to reduce its stake in Commerzbank, stating that the bank “has shown to be standing firmly on its own feet again”, providing an opportunity for UniCredit’s move. Commerzbank shares reached €15.85, a price not seen for 12 years, and UniCredit shares gained 0.6% upon this news. Regarding whether the ECB will approve of this plan, cross-border bank mergers are heavily favored as they are regarded as crucial boosters of EU global competitiveness and create a strong banking union, increasing financial sector integration within the EU. Thus the ECB is likely to look favorably upon UniCredit, who claim that a growing and competitive market in German banking is key to the economic success of both the German and European economy as a whole. Deutsche Bank, on the other hand, is looking to block this deal as a UniCredit takeover of Commerzbank could result in Deutsche Bank losing a large chunk of their market share in Germany.
On September 23rd, 2024, UniCredit announced its entry into financial instruments that relate to about 11.5% of Commerzbank shares, a move that increases their ownership in Commerzbank to about 21%, conditional on supervisory approval. UniCredit further mentioned that through work alongside Jeffries Financial Group, most of their potential stake has been hedged to mitigate the risk of Commerzbank’s share price declining, providing them full flexibility to maintain, decrease, or increase their shareholding. This move, which makes UniCredit the largest shareholder in Commerzbank, has received significant political backlash from members of the German government, such as Chancellor Olaf Scholz, who labeled UniCredit’s actions as an “unfriendly attack”, which was one-sided and lacking cooperation and consultation. Furthermore, Friedrich Merz, a candidate for Germany’s next chancellor, described a UniCredit takeover of Commerzbank as a “disaster for Germany's banking market”, amplifying the extent of the backlash from German politicians. These harsh words resulted in a nearly 6% and a 3.3% drop in Commerzbank and UniCredit shares respectively as investors began to reassess the chances of the ECB approving UniCredit’s request to increase their stake to 29.9%. The German government has also since announced that additional Commerzbank share sales would be suspended until further notice. Later, on October 25th, 2024, Commerzbank CEO Bettina Orlopp, stated that Commerzbank is committed to a standalone strategy, further reducing the probability of ECB approval, as further acquisition would surely be considered hostile.
UniCredit’s 21% acquisition of Commerzbank, with a potential increase in shareholding, displays the bank’s strategic goal to strengthen its presence in key European markets. Commerzbank, the second largest bank in the biggest European economy, will allow UniCredit to further enter into Germany and Poland’s large and highly lucrative corporate and retail banking sectors. UniCredit has already expanded into Germany through their acquisition of HypoVereinsbank and plans to merge Commerzbank with HypoVereinsbank, creating the largest bank in Germany. Additionally, UniCredit sees improved long-run profitability for both banks through operational synergies that can lead to cost reduction and improved efficiency, resulting in long-term gains for shareholders. Since both UniCredit and Commerzbank strongly focus their operations on corporate lending, they will be able to offer more competitive services by leveraging each other's market positions. UniCredit’s digital banking expertise can further aid Commerzbank’s operations by creating more efficient and attractive services. Acquiring Commerzbank will also allow UniCredit to diversify its portfolio, resulting in less concentration in Italy and more of an international presence. Thus, through this move, UniCredit will be able to construct an integrated European bank which will expand their geographic reach and customer base, allowing them to compete with other European banking giants such as BNP Paribas and Deutsche Bank, and potentially leading to more cross-border mergers as banks fight to expand and maintain their share in key markets.
Circumventing regulations: How Andrea Orcel built up his ownership
Due to Brussels red tape regarding financial reporting, Andrea Orcel and Unicredit had to be furtive in their move of building up a stake in Commerzbank so as not to attract media attention, and in turn, defensive measures from other shareholders (i.e. the German government). As some context information, the EU regulatory board demands that shareholders report their ownership stake when it reaches a certain threshold, so as to maintain public awareness of potential hostile takeovers. In the case of financial institutions, the EU is increasingly protective; the European Central Bank must approve all stakes in excess of 10 percent. In this way, Unicredit had to fight for the regulatory nod. At the same time, they had to get the nod from the public and the media by averting - or at the very least, delaying - the suspicion that they were brewing a takeover.
For this reason, Unicredit levitated at a 9% stake before jumping over 2 regulatory thresholds and getting to a 21% stake. Before we analyze the intricate mastery behind that jump, let’s take a brief look at the cogs and screws behind Unicredit’s build-up of that initial 9% stake. Essentially, up until August of 2024, Unicredit lingered just below the 5% disclosure threshold through a combination of an initial stake of just under 3% from a direct share acquisition and some 1.7% in return swaps (a financial transaction that allows investors to get exposure to the positive returns of an equity while not possessing it). The return swap is usually convertible to physical equity by the end of the swap contract. In this case, Unicredit closed their 1.7% return swap on Commerzbank shares only after they acquired a 4.5% stake from the German government in an auction-based block trade on September 10th.
Now that Orcel was at 9% by September 11th, he was faced with the predicament of building up an increasing stake during heightened scrutiny of the takeover. Unicredit smartly realized that it would not make sense to raise the stake to simply 10%. This is for three key reasons: First of all, Unicredit would still be a minority investor behind the German government at 12%. Second, The regulatory approval would launch another press headline and thus an additional wave of attention. Finally, Unicredit would then still have to make yet another massive revelation to the markets when they eventually reach and report their 20% threshold.
Why exactly were these important reasons for Unicredit to lay low? Well, if Unicredit is constantly reminding the media of its presence in Commerzbank’s backdoors, then that could have fiduciary backlash, as hedge funds could jack up share prices and existing shareholders with voting interests would look for anti-takeover measures. Media attention would also ruffle feathers in Berlin, possibly giving an uncertain SDP government time to brew up a political case against consolidation. Therefore, by jumping to a 21% stake, Orcel was able to kill the three aforementioned birds with one stone.
But how did he do it? To maintain secrecy, Unicredit continued to use the furtive return swap. On September 23, under the leadership of an in-house ex-UBS and Goldman Sachs trader, Unicredit achieved just over another 11% exposure to Commerzbank’s stock through two separate return swap agreements. In this way, Unicredit was giving itself the option to convert the swap contract into physical equity upon regulatory approval. Furthermore, the return swap ensured Unicredit that it was protecting itself against a jump in Commerzbank’s share price. This is especially important considering that on September 11th, when the news of the purchase of 4.5% equity from the German government slammed headlines because of the 5% disclosure threshold, Commerzbank shares jumped by 16.5% from 12.600 at market close on September 10th to 14.685 by market close on September 11th.
Because of the non-binding nature of a return swap, Unicredit was able to hedge itself against price rises and lock in Commerzbank’s September 23 price with the 11.5% stake veiled in two return swap agreements. The former added even another layer of hedging through financial instruments by using a collar to protect against the potential downside of Commerzbank’s stock. By establishing put options, Unicredit made sure that they would be protected in a situation where regulators blocked their acquisition, and merger aspirations fell through. This would in turn pop the bubble of merger hope that inflated Commerzbank’s share price in the first place. On another layer, this collar hedge had a performative nature to it, as Orcel could then quell accusations of a hostile takeover by showing that he was not “all-in” on Commerzbank. The leading broker in this process was Barclays Group.
Due to Brussels red tape regarding financial reporting, Andrea Orcel and Unicredit had to be furtive in their move of building up a stake in Commerzbank so as not to attract media attention, and in turn, defensive measures from other shareholders (i.e. the German government). As some context information, the EU regulatory board demands that shareholders report their ownership stake when it reaches a certain threshold, so as to maintain public awareness of potential hostile takeovers. In the case of financial institutions, the EU is increasingly protective; the European Central Bank must approve all stakes in excess of 10 percent. In this way, Unicredit had to fight for the regulatory nod. At the same time, they had to get the nod from the public and the media by averting - or at the very least, delaying - the suspicion that they were brewing a takeover.
For this reason, Unicredit levitated at a 9% stake before jumping over 2 regulatory thresholds and getting to a 21% stake. Before we analyze the intricate mastery behind that jump, let’s take a brief look at the cogs and screws behind Unicredit’s build-up of that initial 9% stake. Essentially, up until August of 2024, Unicredit lingered just below the 5% disclosure threshold through a combination of an initial stake of just under 3% from a direct share acquisition and some 1.7% in return swaps (a financial transaction that allows investors to get exposure to the positive returns of an equity while not possessing it). The return swap is usually convertible to physical equity by the end of the swap contract. In this case, Unicredit closed their 1.7% return swap on Commerzbank shares only after they acquired a 4.5% stake from the German government in an auction-based block trade on September 10th.
Now that Orcel was at 9% by September 11th, he was faced with the predicament of building up an increasing stake during heightened scrutiny of the takeover. Unicredit smartly realized that it would not make sense to raise the stake to simply 10%. This is for three key reasons: First of all, Unicredit would still be a minority investor behind the German government at 12%. Second, The regulatory approval would launch another press headline and thus an additional wave of attention. Finally, Unicredit would then still have to make yet another massive revelation to the markets when they eventually reach and report their 20% threshold.
Why exactly were these important reasons for Unicredit to lay low? Well, if Unicredit is constantly reminding the media of its presence in Commerzbank’s backdoors, then that could have fiduciary backlash, as hedge funds could jack up share prices and existing shareholders with voting interests would look for anti-takeover measures. Media attention would also ruffle feathers in Berlin, possibly giving an uncertain SDP government time to brew up a political case against consolidation. Therefore, by jumping to a 21% stake, Orcel was able to kill the three aforementioned birds with one stone.
But how did he do it? To maintain secrecy, Unicredit continued to use the furtive return swap. On September 23, under the leadership of an in-house ex-UBS and Goldman Sachs trader, Unicredit achieved just over another 11% exposure to Commerzbank’s stock through two separate return swap agreements. In this way, Unicredit was giving itself the option to convert the swap contract into physical equity upon regulatory approval. Furthermore, the return swap ensured Unicredit that it was protecting itself against a jump in Commerzbank’s share price. This is especially important considering that on September 11th, when the news of the purchase of 4.5% equity from the German government slammed headlines because of the 5% disclosure threshold, Commerzbank shares jumped by 16.5% from 12.600 at market close on September 10th to 14.685 by market close on September 11th.
Because of the non-binding nature of a return swap, Unicredit was able to hedge itself against price rises and lock in Commerzbank’s September 23 price with the 11.5% stake veiled in two return swap agreements. The former added even another layer of hedging through financial instruments by using a collar to protect against the potential downside of Commerzbank’s stock. By establishing put options, Unicredit made sure that they would be protected in a situation where regulators blocked their acquisition, and merger aspirations fell through. This would in turn pop the bubble of merger hope that inflated Commerzbank’s share price in the first place. On another layer, this collar hedge had a performative nature to it, as Orcel could then quell accusations of a hostile takeover by showing that he was not “all-in” on Commerzbank. The leading broker in this process was Barclays Group.
Cross-Border Compliance: Legal Regulatory Frameworks
The landscape of mergers and acquisitions (M&A) in the European banking sector is a complex web of regulatory requirements, corporate law, and business considerations. The potential acquisition of Commerzbank by UniCredit is an illustrative case study of the current challenges and considerations faced during multinational M&A processes.
Mergers and acquisitions in the European banking sector take place within a multi-layered regulatory structure. At the EU level, the European Central Bank (ECB) acts as the supreme supervisory authority under the Single Supervisory Mechanism (SSM), while national regulators perform important supervisory functions. Every major bank merger must be approved by the ECB, the national banking authorities and the competition authorities. In the case of UniCredit-Commerzbank, this involves the German Federal Financial Supervisory Authority (BaFin), the Banca d'Italia, and the European Commission's Competition Directorate. The legal framework results primarily from the EU Merger Regulation (Mergers Regulation) and the national takeover laws. In Germany, the Securities Acquisition and Takeover Act (WpÜG) regulates takeover attempts, while Italy's Consolidated Finance Act (TUF) contains corresponding provisions. These frameworks set binding offer thresholds, pricing rules, and shareholder protection mechanisms.
The path to a successful M&A transaction navigates a plethora of legal scenarios that must be carefully evaluated and tailored to the situation at hand. Generally, the M&A process can follow one of two approaches: a friendly or a hostile takeover.
A friendly merger, as the name indicates, focuses on cooperation between the parties and mutual agreement. It requires the approval of the supervisory boards of both companies, shareholder approval, which must meet certain thresholds, and comprehensive regulatory approval. In contrast to the dramatic confrontations of hostile takeovers, friendly mergers require careful preparation and diplomatic engagement. For UniCredit and Commerzbank, this entails a multi-layered approval process that goes far beyond simple negotiations in the Supervisory Board. The procedure begins with comprehensive regulatory applications. As such the European Central Bank (ECB) requires extensive documentation detailing capital adequacy, risk management protocols, and operational integration strategies. Every aspect of the potential merger is scrutinized - from financial health to potential systemic risks. Throughout the analysis, the European Commission acts as a critical arbiter and conducts a detailed competition analysis. Will the merger lead to unacceptable market concentration? Could it harm the interests of consumers? These questions transform the merger from a “mere” corporate transaction into a matter of public economic policy. The role of national supervisory authorities further exacerbates the complexity of the process. For example, in Germany in particular, the considerations regarding labor laws and the responsible authority, the Works Council, create additional hurdles that must be overcome during the acquisition.
These complexities can be even more pronounced in the context of a hostile takeover. A hostile takeover is a more aggressive corporate strategy that is fraught with several legal issues. As soon as an acquirer exceeds the critical shareholding threshold of 30%, a cascade of legal obligations is triggered. Mandatory bidding requirements apply, with strict minimum price rules based on historical trading patterns. Increased disclosure requirements are of paramount importance. Every step must be communicated transparently, with regulators monitoring every transaction. The limited ability to conduct due diligence poses a further challenge, forcing acquirers to make strategic decisions based on imperfect information. In the case of Commerzbank, the state's 12.11% stake brings an additional wild card into play. Possible state intervention becomes a strategic consideration and transforms a seemingly purely commercial transaction into a matter of national economic interest.
Legal Battlements: The Complex Defense Architecture of European Banking M&A
European banks employ sophisticated legal defenses against unwanted takeovers through multiple regulatory mechanisms. National banking laws, such as Germany's KWG and Italian regulations, require potential acquirers to demonstrate strict financial soundness and reliability. Additionally, corporate bylaws frequently incorporate ownership caps and voting restrictions that effectively separate economic ownership from control rights, creating significant barriers to hostile takeovers.
The governance structures of European banks are designed to resist rapid changes in control. Staggered board terms ensure that board members' tenures overlap for several years, making it difficult for acquirers to quickly gain board representation even with substantial shareholding. While traditional American-style poison pills are less common, European institutions have developed equivalent protections through strategic alliances, cross-shareholding arrangements, and complex ownership structures that activate during hostile approaches.
Cross-border acquisitions face additional complexity from regulatory requirements. Potential acquirers must address technological integration, governance alignment, and compliance standards across different jurisdictions. These requirements serve as natural deterrents by increasing both execution complexity and risk premiums.
The UniCredit-Commerzbank case illustrates these challenges in practice. Despite improved financial positions, potential mergers must navigate both national and EU banking regulations while addressing diverse stakeholder rights across jurisdictions. The success of such transactions depends on effectively managing multiple regulatory frameworks and legal requirements, highlighting why consolidation in European banking remains challenging despite market pressures for integration.
The landscape of mergers and acquisitions (M&A) in the European banking sector is a complex web of regulatory requirements, corporate law, and business considerations. The potential acquisition of Commerzbank by UniCredit is an illustrative case study of the current challenges and considerations faced during multinational M&A processes.
Mergers and acquisitions in the European banking sector take place within a multi-layered regulatory structure. At the EU level, the European Central Bank (ECB) acts as the supreme supervisory authority under the Single Supervisory Mechanism (SSM), while national regulators perform important supervisory functions. Every major bank merger must be approved by the ECB, the national banking authorities and the competition authorities. In the case of UniCredit-Commerzbank, this involves the German Federal Financial Supervisory Authority (BaFin), the Banca d'Italia, and the European Commission's Competition Directorate. The legal framework results primarily from the EU Merger Regulation (Mergers Regulation) and the national takeover laws. In Germany, the Securities Acquisition and Takeover Act (WpÜG) regulates takeover attempts, while Italy's Consolidated Finance Act (TUF) contains corresponding provisions. These frameworks set binding offer thresholds, pricing rules, and shareholder protection mechanisms.
The path to a successful M&A transaction navigates a plethora of legal scenarios that must be carefully evaluated and tailored to the situation at hand. Generally, the M&A process can follow one of two approaches: a friendly or a hostile takeover.
A friendly merger, as the name indicates, focuses on cooperation between the parties and mutual agreement. It requires the approval of the supervisory boards of both companies, shareholder approval, which must meet certain thresholds, and comprehensive regulatory approval. In contrast to the dramatic confrontations of hostile takeovers, friendly mergers require careful preparation and diplomatic engagement. For UniCredit and Commerzbank, this entails a multi-layered approval process that goes far beyond simple negotiations in the Supervisory Board. The procedure begins with comprehensive regulatory applications. As such the European Central Bank (ECB) requires extensive documentation detailing capital adequacy, risk management protocols, and operational integration strategies. Every aspect of the potential merger is scrutinized - from financial health to potential systemic risks. Throughout the analysis, the European Commission acts as a critical arbiter and conducts a detailed competition analysis. Will the merger lead to unacceptable market concentration? Could it harm the interests of consumers? These questions transform the merger from a “mere” corporate transaction into a matter of public economic policy. The role of national supervisory authorities further exacerbates the complexity of the process. For example, in Germany in particular, the considerations regarding labor laws and the responsible authority, the Works Council, create additional hurdles that must be overcome during the acquisition.
These complexities can be even more pronounced in the context of a hostile takeover. A hostile takeover is a more aggressive corporate strategy that is fraught with several legal issues. As soon as an acquirer exceeds the critical shareholding threshold of 30%, a cascade of legal obligations is triggered. Mandatory bidding requirements apply, with strict minimum price rules based on historical trading patterns. Increased disclosure requirements are of paramount importance. Every step must be communicated transparently, with regulators monitoring every transaction. The limited ability to conduct due diligence poses a further challenge, forcing acquirers to make strategic decisions based on imperfect information. In the case of Commerzbank, the state's 12.11% stake brings an additional wild card into play. Possible state intervention becomes a strategic consideration and transforms a seemingly purely commercial transaction into a matter of national economic interest.
Legal Battlements: The Complex Defense Architecture of European Banking M&A
European banks employ sophisticated legal defenses against unwanted takeovers through multiple regulatory mechanisms. National banking laws, such as Germany's KWG and Italian regulations, require potential acquirers to demonstrate strict financial soundness and reliability. Additionally, corporate bylaws frequently incorporate ownership caps and voting restrictions that effectively separate economic ownership from control rights, creating significant barriers to hostile takeovers.
The governance structures of European banks are designed to resist rapid changes in control. Staggered board terms ensure that board members' tenures overlap for several years, making it difficult for acquirers to quickly gain board representation even with substantial shareholding. While traditional American-style poison pills are less common, European institutions have developed equivalent protections through strategic alliances, cross-shareholding arrangements, and complex ownership structures that activate during hostile approaches.
Cross-border acquisitions face additional complexity from regulatory requirements. Potential acquirers must address technological integration, governance alignment, and compliance standards across different jurisdictions. These requirements serve as natural deterrents by increasing both execution complexity and risk premiums.
The UniCredit-Commerzbank case illustrates these challenges in practice. Despite improved financial positions, potential mergers must navigate both national and EU banking regulations while addressing diverse stakeholder rights across jurisdictions. The success of such transactions depends on effectively managing multiple regulatory frameworks and legal requirements, highlighting why consolidation in European banking remains challenging despite market pressures for integration.
The European odyssey. Or how the EU misinterpreted legacy for lethargy
The internal tensions, coupled with a challenging climate and politicians' persistent pursuit of voter support and electoral benefits, have already begun to impact the practical side of business. The most significant case that could be observed in recent years within the banking sector will make the main examination subject of this article. Unicredit's ambition to purchase Commerzbank, a focal point for the steps taken towards the goal of a European Banking Union, may swiftly transition from a success narrative to a consequence of the emerging nationalistic status quo that appears to dominate Europe. Politics, whether we acknowledge it or not, significantly influences the result of this case, and recent developments have created a potential future where Unicredit's situation may not be unique.
Since 1979, European member states have conducted elections for the European Parliament every five years, and June 2024 signified the tenth European Parliamentary Elections. However, the political landscape this year appears much altered compared to five years ago. In light of a prior mandate disrupted by a global pandemic, climate change, conflict at the Union's frontiers, and an energy crisis that halted industries across Europe and subjected its population to significant challenges, the European Union seems to be less robust and resilient than before. As a proponent of innovation and a pioneer in areas like energy transition, the EU is hindered by intrinsic drawbacks, both collectively and at the level of individual member states. 2024 presents a markedly different narrative regarding the European Union compared to 2019, as this year's elections were shaped by discontent, dissatisfaction, and a democratic deficit, rather than progress, profitability, and performance.
These successive crises, together with the difficult-to-understand decision making process at the EU level, led a significant number of citizens from every country to seek refuge and representation in more nationalistic, protectionist and extremist factions. The populist movements advocate for less cooperation and integration among EU members and more nationalistic focus. Along this line of thought, these factions became the first political parties in Austria, France, and the Netherlands, but they also gained substantial support in almost every other European member state — and Germany is no exception. With legislative elections coming up in September 2025, Germany faces a significant shift in the political spectrum towards the extreme-right political ideology. This becomes really problematic once the economic soundness of public policies and the effectiveness of legislative acts are substituted by nationalistic discourses and dysfunctional solutions to serious problems. Furthermore, this change of paradigm also precludes the development of a better equipped Europe in face of the threats and changes of the world, hence refocusing attention on isolation and protectionism.
Unicredit, through its leader, Andrea Orcel, took the first steps towards a courageous deal that has been awaited by every supporter of European integration. The cross-border acquisition and the desire to build a trans-national European bank with considerable market shares in two of EU’s biggest countries, Germany and Italy, could be seen as a fundamental step towards the long-awaited Banking Union that proponent figures have talked about. However, the economic soundness of the acquisition and the fortunate event in which the EU would finally manage to create integrated banks that succeed in competing with their US counterparts might not be enough for Europe. As seen in the way in which the steps in this deal unfolded so far, the process of acquiring a principal stake in Commerzbank was ingenious, but far from straightforward. National discrepancies between Italy and Germany were not superseded, cultural factors seemed to have intensified and politics appeared to bridge the two.
With a European Union that has struggled in the past months to diminish the political gain of the far-right political parties and a political spectrum sliding more and more towards a protectionist and more conservative far-right ideology, the M&A sector looks to be in a deadlock in Europe. What is more, the acquisition talks between Unicredit and Commerzbank are all the more affected by the difficult internal situation in Germany. With elections coming out in September next year and with a highly unpopular left-wing government in power, the nationalistic right looks bright towards the outcome of the following legislative elections. As the latter gathers traction and considering that electoral results frequently affect public policy and governmental stances on various issues, a change among other political parties towards a more protectionist perspective is anticipated. According to the Swing Voter model, political parties adjust their positions to enhance their appeal to non-ideological voters, hence optimizing the likelihood of securing voter support. Consequently, a context where individuals are dissatisfied with the escalating crises impacting their incomes and well-being, coupled with a complex multilevel governance structure, prompts citizens to frequently realign their preferences towards more comprehensible policy proposals, increased protectionism, and a political approach that prioritizes immediate promises and results over long-term solutions. This scenario is clearly illustrated by the case of Unicredit and Commerzbank, as the present government opposes the acquisition of the latter by the former, despite the potential for beneficial synergies, the establishment of a more efficient transnational bank, and the creation of a redoubtable competitor to the US megabanks that express increased dominance. Furthermore, this opposition arises following a phase in which Germany was the foremost advocate for enhanced integration at the EU level and a proponent of the Banking Union. Consequently, considering the electoral environment and the impending electoral pressures, it is reasonable to establish a significant correlation between the two instances. This connection intensifies as the agreement appears to enhance value for both banks in question, generating synergies and positive externalities for the banks and the Union alike.
Ultimately, the correlation drawn in this article between the political decision shaping the outcome of the Unicredit-Commerzbank deal and the guidelines set forth in Mario Draghi’s report are far from coincidental. The article’s introduction, which touches on Draghi’s vision for European competitiveness alongside the current standoff between the two financial institutions, highlights an apparent paradox. As the former Prime Minister notes in his report, "in a world of winner-takes-all dynamics, scale is crucial—not only for individual companies, but also for access to markets, resources, and potential partners". This underscores the urgency of establishing prominent players in sectors critical for European development, highlighting the necessary changes the EU needs to provide – both legislative and institutional – in order to facilitate long-term growth and increased profitability in its markets. However, this pronounced difference between normativity and real-life experiences outlines the long periple that the EU still has to embark on in order to bring back the heritage of excellency that it built in more than 70 years of history.
Conclusions
The Unicredit-Commerzbank case highlights how nationalism across Europe undermines the EU's ambitions of leveraging financial integration and unity to bolster growth. The EU works to promote a banking union and to favor consolidation within the financial sector, in order for European banks to scale their size and be competitive against their counterparts in the US. A more homogeneous financial system, with larger banks, is an essential part of what Draghi suggested in its report as a way to stimulate growth and competitiveness within the European bloc. In a period in which the EU is trying to achieve these objectives, the regulatory and political challenges that Unicredit would encounter if they decide to move forward with an acquisition reveal the fragmented landscape that still characterizes the EU, where national interests are often placed above collective goals. Fueling this nationalistic sentiment so resistant to cross-border transactions, especially in the financial services industry, there is the rise of far-right and populist political parties in many EU countries. Politicians from these factions argue that foreign acquisitions like this one have the potential to harm financial sovereignty, particularly when they involve banks such as Commerzbank, which exerts significant influence over the German economy being one of the major lenders to SMEs, the engine of the country.
The opposition faced by Unicredit depicts how the EU’s need for scale and integration within the financial sector still struggles with great heterogeneity in terms of regulations and political views. This creates an environment that makes it unnecessarily difficult for financial institutions to operate and merge across countries. For the EU, reconciling economic ambitions with the interests of member states will be of paramount importance to pave the way for a unified and globally competitive financial system.
The internal tensions, coupled with a challenging climate and politicians' persistent pursuit of voter support and electoral benefits, have already begun to impact the practical side of business. The most significant case that could be observed in recent years within the banking sector will make the main examination subject of this article. Unicredit's ambition to purchase Commerzbank, a focal point for the steps taken towards the goal of a European Banking Union, may swiftly transition from a success narrative to a consequence of the emerging nationalistic status quo that appears to dominate Europe. Politics, whether we acknowledge it or not, significantly influences the result of this case, and recent developments have created a potential future where Unicredit's situation may not be unique.
Since 1979, European member states have conducted elections for the European Parliament every five years, and June 2024 signified the tenth European Parliamentary Elections. However, the political landscape this year appears much altered compared to five years ago. In light of a prior mandate disrupted by a global pandemic, climate change, conflict at the Union's frontiers, and an energy crisis that halted industries across Europe and subjected its population to significant challenges, the European Union seems to be less robust and resilient than before. As a proponent of innovation and a pioneer in areas like energy transition, the EU is hindered by intrinsic drawbacks, both collectively and at the level of individual member states. 2024 presents a markedly different narrative regarding the European Union compared to 2019, as this year's elections were shaped by discontent, dissatisfaction, and a democratic deficit, rather than progress, profitability, and performance.
These successive crises, together with the difficult-to-understand decision making process at the EU level, led a significant number of citizens from every country to seek refuge and representation in more nationalistic, protectionist and extremist factions. The populist movements advocate for less cooperation and integration among EU members and more nationalistic focus. Along this line of thought, these factions became the first political parties in Austria, France, and the Netherlands, but they also gained substantial support in almost every other European member state — and Germany is no exception. With legislative elections coming up in September 2025, Germany faces a significant shift in the political spectrum towards the extreme-right political ideology. This becomes really problematic once the economic soundness of public policies and the effectiveness of legislative acts are substituted by nationalistic discourses and dysfunctional solutions to serious problems. Furthermore, this change of paradigm also precludes the development of a better equipped Europe in face of the threats and changes of the world, hence refocusing attention on isolation and protectionism.
Unicredit, through its leader, Andrea Orcel, took the first steps towards a courageous deal that has been awaited by every supporter of European integration. The cross-border acquisition and the desire to build a trans-national European bank with considerable market shares in two of EU’s biggest countries, Germany and Italy, could be seen as a fundamental step towards the long-awaited Banking Union that proponent figures have talked about. However, the economic soundness of the acquisition and the fortunate event in which the EU would finally manage to create integrated banks that succeed in competing with their US counterparts might not be enough for Europe. As seen in the way in which the steps in this deal unfolded so far, the process of acquiring a principal stake in Commerzbank was ingenious, but far from straightforward. National discrepancies between Italy and Germany were not superseded, cultural factors seemed to have intensified and politics appeared to bridge the two.
With a European Union that has struggled in the past months to diminish the political gain of the far-right political parties and a political spectrum sliding more and more towards a protectionist and more conservative far-right ideology, the M&A sector looks to be in a deadlock in Europe. What is more, the acquisition talks between Unicredit and Commerzbank are all the more affected by the difficult internal situation in Germany. With elections coming out in September next year and with a highly unpopular left-wing government in power, the nationalistic right looks bright towards the outcome of the following legislative elections. As the latter gathers traction and considering that electoral results frequently affect public policy and governmental stances on various issues, a change among other political parties towards a more protectionist perspective is anticipated. According to the Swing Voter model, political parties adjust their positions to enhance their appeal to non-ideological voters, hence optimizing the likelihood of securing voter support. Consequently, a context where individuals are dissatisfied with the escalating crises impacting their incomes and well-being, coupled with a complex multilevel governance structure, prompts citizens to frequently realign their preferences towards more comprehensible policy proposals, increased protectionism, and a political approach that prioritizes immediate promises and results over long-term solutions. This scenario is clearly illustrated by the case of Unicredit and Commerzbank, as the present government opposes the acquisition of the latter by the former, despite the potential for beneficial synergies, the establishment of a more efficient transnational bank, and the creation of a redoubtable competitor to the US megabanks that express increased dominance. Furthermore, this opposition arises following a phase in which Germany was the foremost advocate for enhanced integration at the EU level and a proponent of the Banking Union. Consequently, considering the electoral environment and the impending electoral pressures, it is reasonable to establish a significant correlation between the two instances. This connection intensifies as the agreement appears to enhance value for both banks in question, generating synergies and positive externalities for the banks and the Union alike.
Ultimately, the correlation drawn in this article between the political decision shaping the outcome of the Unicredit-Commerzbank deal and the guidelines set forth in Mario Draghi’s report are far from coincidental. The article’s introduction, which touches on Draghi’s vision for European competitiveness alongside the current standoff between the two financial institutions, highlights an apparent paradox. As the former Prime Minister notes in his report, "in a world of winner-takes-all dynamics, scale is crucial—not only for individual companies, but also for access to markets, resources, and potential partners". This underscores the urgency of establishing prominent players in sectors critical for European development, highlighting the necessary changes the EU needs to provide – both legislative and institutional – in order to facilitate long-term growth and increased profitability in its markets. However, this pronounced difference between normativity and real-life experiences outlines the long periple that the EU still has to embark on in order to bring back the heritage of excellency that it built in more than 70 years of history.
Conclusions
The Unicredit-Commerzbank case highlights how nationalism across Europe undermines the EU's ambitions of leveraging financial integration and unity to bolster growth. The EU works to promote a banking union and to favor consolidation within the financial sector, in order for European banks to scale their size and be competitive against their counterparts in the US. A more homogeneous financial system, with larger banks, is an essential part of what Draghi suggested in its report as a way to stimulate growth and competitiveness within the European bloc. In a period in which the EU is trying to achieve these objectives, the regulatory and political challenges that Unicredit would encounter if they decide to move forward with an acquisition reveal the fragmented landscape that still characterizes the EU, where national interests are often placed above collective goals. Fueling this nationalistic sentiment so resistant to cross-border transactions, especially in the financial services industry, there is the rise of far-right and populist political parties in many EU countries. Politicians from these factions argue that foreign acquisitions like this one have the potential to harm financial sovereignty, particularly when they involve banks such as Commerzbank, which exerts significant influence over the German economy being one of the major lenders to SMEs, the engine of the country.
The opposition faced by Unicredit depicts how the EU’s need for scale and integration within the financial sector still struggles with great heterogeneity in terms of regulations and political views. This creates an environment that makes it unnecessarily difficult for financial institutions to operate and merge across countries. For the EU, reconciling economic ambitions with the interests of member states will be of paramount importance to pave the way for a unified and globally competitive financial system.
By Sava Neskovic, Pierluca Panza, Jennifer Anastasia Povolotskaya, Rares-Bogdan Rosulescu and Sal Vassallo
SOURCES
- Financial Times
- Reuters
- European Commission
- Wall Street Journal
- Beltratti, A., & Paladino, G. (2023). "Cross-border Bank Mergers in the Euro Area: Recent Trends and Policy Implications."
- Journal of Banking Regulation
- Romano, G., & Ferretti, P. (2023). "Defensive Mechanisms in European Banking M&A: A Comparative Analysis.”
- PricewaterhouseCoopers (2023).
- Deutsche Welle
- FactSet
- Politico
- CNBC
- UniCredit
- Bloomberg
- GFM Review