(Bloomberg) -- UniCredit SpA’s potential takeover of its German rival Commerzbank AG would create the largest lender in the country, giving a significant boost to Chief Executive Officer Andrea Orcel’s goal of becoming a true pan-European bank.
The German revenue of Hypovereinsbank and Commerzbank would have added up to €13.8 billion ($15.2 billion) last year, compared with €13.4 billion euros for Deutsche Bank AG.
Such a transaction would add some €560 billion of assets to the Milan-based lender’s balance sheet, or a 70% increase. The purchase would also broaden access to key Mittelstand clients — the small and medium-sized companies that form the backbone of Germany’s economy, and it would allow UniCredit to expand its presence in key markets of central and Eastern Europe.
Commerzbank is “the best fit” for Unicredit given its size in Germay and its operations in Poland,” Andrea Filtri, an analyst at Mediobanca SpA, wrote in a note.
Orcel has repeatedly said UniCredit wants to be the “Bank for Europe.” While that would be tough call for most in a historically fragmented market, UniCredit has a more realistic claim to the title, with a presence in 13 countries including the major business already in Germany, the region’s largest economy.
Orcel is still sitting on €10 billion for potential acquisitions, a figure that would be between €6 billion and €7 billion once the Basel III regulations are fully taken into account. UniCredit had previously considered buying Commerzbank, Bloomberg has reported, though it never made an official move.
In June Orcel said that ideal M&A for him would allow UniCredit to grow where it already has a presence, enabling a higher contribution to the group from the CEE region and a consolidation of Italy, Germany and Austria in a balanced fashion. A purchase of Commerzbank would fit with that aspiration.
UniCredit agreed to buy Munich-based HVB Group in 2005 in a transaction worth about €19 billion at the time. The unit, renamed UniCredit Bank AG, serves private clients as well as small business and corporations.
HVB has shrunk considerably in recent years as part of the bank’s deleveraging plan. Orcel has streamlined the structure, cut costs and jobs and moved some activities to Milan.
UniCredit’s revenue in Germany rose to €1.4 billion in the second quarter, representing about 22% of the lender’s total revenue in the period. The net profit in the country stood at €503 million, it said in a statement in July.
“Germany is the market where UniCredit has the smallest market share and we think banking is increasingly a business of scale,” Hugo Cruz, an analyst at KBW, said in a note to clients. Both lenders “are large in corporate banking, so there should be obvious synergies between the two banks if a deal is done right.”
Commerzbank’s purchase would bring with it the control of MBank, a major lender in Poland, a key country for Orcel’s ambition to expand in eastern Europe.
UniCredit left the country in 2017 when Orcel’s predecessor Jean Pierre Mustier sold Poland-based Bank Pekao SA. Orcel has reversed course, re-entering the market earlier this year through the acquisition of Warsaw-based Vodeno and Aion Bank, which is focused on online retail banking.
Poland has always been a key market for us, it is critical for Central and Eastern Europe, Orcel said at the time, adding that the bank left the country through the Pekao sale “reluctantly.”
One potential downside of a tie-up would be a multiplication of UniCredit’s problems in Russia, where Commerzbank also has a substantial presence. A Russian court froze the local assets of UniCredit, Commerzbank and Deutsche Bank in May. UniCredit set aside €228 in provisions related to its own exposure there.
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