Talks Between European Banks May Kick-Start More Cross-Border Deals

DealBook|Talks Between European Banks May Kick-Start More Cross-Border Deals

For the past two decades, European banks have lurched from crisis to crisis, leading to government bailouts and stifling the sector’s growth.

But financial industry leaders have been abuzz this month after UniCredit, a profitable Italian lender, began acquiring what is now a 21 percent stake in a beleaguered German rival, Commerzbank, as Berlin started selling its shares in the lender. (UniCredit is now a bigger shareholder than the German government.)

The daring move, which stunned investors and German officials, puts pressure on Commerzbank to consider a potential union of the two banks. Talks began on Friday, but politics in Germany and Brussels are weighing on the prospects of any deal.

UniCredit has said it wants to amass even more shares in Commerzbank, raising speculation that Europe may see its first significant cross-border deal since three banks carved up the troubled Dutch lender ABN Amro in 2007. (That deal was roundly seen as a disaster.)

Investors are cheering the prospect of a takeover. Commerzbank’s shares have surged nearly 30 percent over the past two weeks and are now trading at a 13-year high on optimism the German lender will link up with a bigger partner. “In the long-run we believe a tie-up between the two is the most likely outcome,” Borja Ramirez Segura, an analyst at Citi, wrote in a note to clients on Thursday.

Alexandra Annecke, a fund manager at Union Investment, which owns a 1.5 percent stake in Commerzbank, said that “cooperation with UniCredit — in whatever form — does not have to be to the detriment of Commerzbank.”

But German politicians and union bosses stand in the way. “Unfriendly attacks, hostile takeovers are not a good thing for banks and that is why the German government has clearly positioned itself in this direction,” Olaf Scholz, the German chancellor, said this week during a visit in New York.

Andrea Orcel, the chief executive of UniCredit and a prominent deal maker, played down talk of pursuing a hostile bid, saying this week that his company was not seeking a board seat at Commerzbank.

A deal would test the European Union’s tolerance for such cross-border deals. Mr. Orcel has said he sees international consolidation as the best way to build a European mega-bank that could better challenge the likes of JPMorgan Chase.

Enrico Letta, a former Italian prime minister who wrote a much-cited report on the future of the E.U.’s single market, said the market — not governments — should decide the fate of the banks’ talks.

Falling interest rates may drive more deals. The high rates of recent years padded UniCredit’s bottom line, giving Orcel financial fuel for mergers and acquisitions, said Marco Troiano, the head of financial institutions at the credit ratings agency Scope Ratings.

With rates heading down, more banks could be motivated to explore takeovers, he added.