(This Sept. 19 story has been corrected to take away the reference to hedge fund, in paragraph 27)
By John O’Donnell
FRANKFURT (Reuters) – For many years, Andrea Orcel was the ‘rainmaker’ who CEOs turned to for recommendation on the massive offers that reshaped the banking panorama.
Now, as UniCredit chief govt, the Italian has set himself his largest check up to now — breaking down Europe’s deeply entrenched political resistance to cross-border mergers.
Orcel signalled his merger ambitions final week when his Italian financial institution swooped on Commerzbank (ETR:), turning into its second-biggest shareholder behind the German authorities, which holds a stake after a crisis-era rescue.
UniCredit’s transfer — codenamed ‘Flash’ after Orcel’s canine — has triggered a frenzied seek for path in Berlin, opposition from labour unions and a defence technique from Germany’s second-largest listed lender.
Orcel now desires to begin talks on a mixture he says would “create a a lot stronger competitor” in Germany. His gambit comes after years of requires Europe to enhance its banks’ competitiveness within the face of bigger U.S. and Asian rivals.
He faces massive hurdles.
Cross-border European banking offers have been stymied by elements together with years of paltry profitability which have left lenders too weak to strive. And regulatory obstacles to transferring assets freely throughout borders have been bolstered by a desire for home-grown ‘champions’ amongst politicians.
A turnaround of UniCredit has overcome one of many obstacles. The financial institution, not like rivals, has the monetary firepower for a daring mixture after reaping bumper income.
However nationwide politics would be the laborious half.
“Most European international locations have overpriced banking companies as a result of they’re within the arms of a handful of native banks,” mentioned Karel Lannoo of the Centre for European Coverage Research.
“The German response to UniCredit’s curiosity in Commerzbank reveals the resistance to altering this,” Lannoo mentioned. “It’s the Italians coming to show the Germans a lesson within the free market and the Germans do not like it.”
Some in Germany’s authorities have been aggravated by what they noticed as a stealth transfer by UniCredit, which constructed up its 9% stake in a single day, one supply informed Reuters.
UniCredit mentioned it had been clear with its transfer, which comes at a fragile time in Germany, with its coalition authorities, some of the unpopular in current historical past, making ready for nationwide elections subsequent 12 months.
Latest beneficial properties for the far-right and far-left are squeezing the three-party coalition and, specifically, the smallest member, the liberal FDP occasion, which runs the finance ministry.
In the meantime, Rome views Milan-based UniCredit’s efforts to construct a big European financial institution favourably so long as it retains its central features in Italy, sources near the matter mentioned.
Nonetheless, Italy is holding its distance and there are not any strikes to again UniCredit’s foray, a senior official informed Reuters.
‘COUNTRY BLIND’
A UniCredit-Commerzbank tie-up could be the most important cross-border European banking deal because the international monetary disaster.
Orcel is betting UniCredit’s present ties in Germany – it owns already owns German lender HVB – and ambition for a mixed group will persuade politicians.
“Europe wants banks which can be succesful to assist every business and the event of Europe in order that we’re an financial bloc that may maintain its personal towards the U.S. and China,” Orcel informed Bloomberg final week.
This echoes a long-running message from officers in Brussels, Europe’s political assembly level.
Final week, in a sweeping report on learn how to make Europe extra aggressive, former European Central Financial institution president Mario Draghi urged the EU to deal with the obstacles to cross-border banking.
Orcel, who walked away from an preliminary settlement to purchase troubled Monte dei Paschi in 2021, upending then Italian Prime Minister Draghi’s efforts to resolve the financial institution’s long-running issues, may be uncompromising.
UniCredit has sued its chief supervisor, the ECB, which has ordered it to retreat in Russia.
Within the face of appreciable resistance in Germany, Orcel dominated out a hostile bid on Thursday, softening his strategy.
If he pulls it off, a deal may rewire considering elsewhere in Europe.
“Think about if somebody right now had been to make a bid for the federal government stake in Monte Dei Paschi, they are going to by no means handle to drag it off,” mentioned Algebris Chief Funding Officer Sebastiano Pirro.
“If (France’s) BNP had been to bid, it might be merely unattainable. They’ve a desire for that to stay domestically. But when UniCredit had been to purchase a German financial institution, then all choices are on the desk,” mentioned Pirro, whose fund is an investor in UniCredit and Commerzbank and backs a tie-up.
‘WORK IN PROGRESS’
Orcel’s subsequent check is getting ECB approval to purchase as much as 30% of Commerzbank. Analysts assume it’s unlikely to face in the best way, given years of calling for such offers.
“The European single market in monetary companies is a piece in progress however mergers like UniCredit and Commerzbank would assist flip it right into a actuality,” mentioned Nicolas Veron of Brussels assume tank Bruegel.
Some query if Orcel ought to even be trying a deal.
M&A “must be complementary; it must be voluntary, and infrequently, fairly often, it must be in the identical nation,” mentioned Patrick Lemmens, fund supervisor at Robeco who owns shares in UniCredit.
“The second you go throughout borders and there is little overlap, it turns into simply tougher.”
