Commerzbank fiasco embarrasses Berlin

Wedensday 25th September

Good morning.

While the Brandenburg election and its fallout have kept me busy over the past few days, another important story has been rumbling on which threatens to derail Berlin’s relationship with both Rome and Brussels, and cause Chancellor Olaf Scholz significant political damage domestically. This concerns the (pretty hostile) attempted takeover of Commerzbank, a 150-year-old German bank which is a key financier of the Mittelstand, by UniCredit, Italy’s second-largest bank.

Last week, as part of long-term plans to sell its stake in Commerzbank acquired after its bailout in 2008, the German government auctioned 4.5% of its remaining 16.5% share. To Berlin’s surprise, one buyer — UniCredit — took up this offering in its entirety with a €700m bid. When UniCredit went on to acquire a further 5% stake through derivatives, the government announced it was pausing any further selloffs.

UniCredit’s reaction to this, according to Spiegel, was like a “declaration of war”:

This Monday, UniCredit surprisingly announced that it had secured a further 11.5 per cent of Commerzbank shares via financial instruments - once again likely to be derivatives - meaning that the Italians now hold a total of 21 per cent. In addition, UniCredit announced that it had applied to the banking supervisory authority to increase its stake to 29.9 per cent. As soon as this application is approved, the derivatives could be converted into shares.

This clearly rattled the Chancellor’s office to the point that on Monday Scholz, in New York for the UN General Assembly, felt compelled to give a bad-tempered statement on the takeover on a street corner in Manhattan.

The Chancellor spoke of an "unfriendly attack" […] "That is why the German government has taken a clear position on this matter and made it very clear that we do not consider this to be an appropriate course of action in Europe and in Germany. The fact that, to a certain extent, attempts are being made without any cooperation, without any consultation, without any feedback, to take an aggressive stake in companies using unfriendly methods." According to the Federal Ministry of Finance: "The German government supports Commerzbank's strategy of independence. We have taken note of UniCredit's actions. We do not support a takeover. We have communicated this to UniCredit."

According to Handelsblatt, “it is rumoured that the FDP-led Federal Ministry of Finance is more open to a merger than the Chancellery. However, Scholz's appearance and choice of words in New York were coordinated within the federal government, according to government circles.”

The Italian reaction, covered by the FAZ, has been to accuse Berlin of hypocrisy over the goal of a closer pan-European banking and financial union.

“Italian Foreign Minister Antonio Tajani expressed his "incomprehension" about the Chancellor's statement in front of the cameras. "When someone buys an Italian company, there is talk of the single European market, but if an Italian buys outside Italy, you are no longer in the single European market. I don't understand that," said Tajani, referring to the takeover of the airline ITA Airways, formerly Alitalia, by Lufthansa, which the Italian government is in favour of. Italy's conservative and nationalist press is also harshly criticising German opposition to the bid. The Germans only want Europe if it suits them and they can give the orders, according to Libero. According to La Verità, the German chancellor's "no" proves "that the European Union does not exist".

You might say there’s a great irony to this Italian government, elected largely on a eurosceptic platform, now chastising the Germans for a lack of commitment to the ideal of ever-closer union. But the consensus seems to be that when it comes down to it, Rome will get its way precisely by making the appeal to Europe. UniCredit will go to the ECB to get approval for taking an even larger share in Commerzbank, and is expected to face little opposition. FAZ picks up on a double irony here: the ECB’s independence, modelled on the Bundesbank, will be the undoing of Berlin’s opposition.

“A rejection is unlikely, as the ECB's banking supervisors and ECB President Lagarde are very favourably disposed towards cross-border bank mergers in the eurozone. The ECB supervisors have been in favour of stronger and larger banks for years and are calling for consolidation across national borders. The European Central Bank has also been modelled on the Bundesbank, not least due to pressure from the Germans, so that it can operate independently of political influence. It is considered impossible that the German government will now test for itself whether the central bank will defend its status against political interference.”

All in all, the consensus seems to be that Berlin has been caught by surprise, backed itself into a corner with an overblown reaction, and now made the matter intensely political, both at home and abroad.

In Berlin, the Süddeutsche’s Economics editor Thomas Fromm writes, it would probably be time to take a self-critical look at what has gone wrong here.

“Instead, the government continues to rely on a mix of protest and lamentation. Federal Chancellor Olaf Scholz (SPD) speaks of an "unfriendly attack", saying that "hostile takeovers" are not "a good thing for banks". He may be right on the merits. Unfortunately, in this case it doesn't seem particularly confident.”

Scholz has clearly tried to position himself as the defender of both workers at Commerzbank, who fear that a takeover will lead to job losses — this week, a major union has called for the bank to be classified as a part of Germany’s critical infrastructure(!)— and the Mittelstand, the SME’s which makes up 99% of Germany’s companies. Scholz underlined the bank’s importance as a key lender to this group in his statement on Monday. But both rhetorically and practically, his opposition is clearly a losing battle. UniCredit can acquire a significant stake with or without the government’s remaining 12% share, and will be helped by an ECB leadership keen to support European banking union. Any chance of a ‘white knight’ — another German bank — swooping in and beating UniCredit’s offer, which several papers speculate could only be Deutsche Bank, seems highly unlikely. The CDU will no doubt make hay out of this; Merz has already called the affair a “disaster”.