Any bank merger in Germany must create competitive lender, Bundesbank chief says

FRANKFURT (Reuters) – Any bank merger in Germany must create a competitive institution robust enough to support economic growth, Bundesbank chief Joachim Nagel said on Wednesday, just as UniCredit is eying a takeover of Germany’s Commerzbank (ETR:CBKG).

Italy’s second-largest bank took a 9% stake in Commerzbank last week, catching German authorities off guard and getting a hostile reception from local management, who want to fend off any takeover attempt.

It will now be up to the European Central Bank whether to allow UniCredit to increase its stake, so any comment from the Bundesbank – whose representative sits on the ECB’s Supervisory Board – is likely to be closely scrutinized.

“We need strong and robust banks so that companies can tackle and finance their future tasks,” Nagel told a Commerzbank event in Frankfurt.

“In case of possible mergers, it is important that a competitive institution is created which fulfils this task as best as possible,” Nagel said, without any specific reference to either of the lenders.

UniCredit is among the best capitalised banks in Europe, with a common equity tier 1 or CET1 capital ratio of 16.2% at the end of the first half, despite a generous dividend and share buy-back programme.

This would suggest that UniCredit has the financial capacity to engineer a viable takeover.

However, any deal is likely to be politically charged since Germany’s banking sector is dominated by two large institutions: Deutsche Bank and Commerzbank.

The sale of Commerzbank to UniCredit would increase competition for Deutsche Bank and leave Commerzbank under foreign control, a potentially sensitive issue for a government facing elections next year.

However, the ECB has repeatedly voiced support for cross-border mergers to improve European banking competitiveness, so the supervisor is unlikely to block the deal if UniCredit can present a plan that creates a financially sound mega-bank.