April 4, 2019 / 10:51 AM / 15 days ago

Breakingviews - UniCredit interest gives German bank merger a push

The headquarters of UniCredit bank is seen in Milan, Italy, in this February 8, 2016 file photo. REUTERS/Stefano Rellandini

LONDON/MILAN (Reuters Breakingviews) - Deutsche Bank boss Christian Sewing has just received an unexpected leg-up from his rival Jean Pierre Mustier, who runs Italy’s UniCredit. Both men are competing for the affections of Commerzbank. The arrival of another suitor puts extra pressure on the German government to back a domestic marriage.

Mustier has been prowling the European banking universe for a partner for a while. He had signalled his interest in Commerzbank, in which the German government holds a 15 percent stake, as far back as late 2017, Reuters reported at the time. But the timing was not ideal: the Italian bank was in the middle of a gruelling restructuring. With most of that now complete, UniCredit is in a stronger position to consider a deal.

Merging its German subsidiary, HypoVereinsbank (HVB), with Commerzbank could deliver 1.6 billion euros of cost savings before tax, according to Banca Akros analysts. That would boost UniCredit’s profitability in the tricky German market: HVB earned a return on equity of less than 2 percent last year.

Deutsche reckons it could extract around twice as many cost savings from a combination with Commerzbank. But the HVB deal would involve fewer redundancies than the 30,000 jobs which could be lost from merging with Deutsche. It would involve lesser execution risk than trying to integrate Deutsche’s large wholesale bank. A union of HVB and Commerzbank would have around 10 percent of the German market – similar to Deutsche.

If Commerzbank chose an Italian suitor, however, Deutsche would be stranded at the altar. That would undermine the German government’s plan to shore up the lender by boosting its domestic base. Mustier may be next in line if Commerzbank’s talks with Deutsche fail. But he has also given the government another reason to make the wedding happen.

Breakingviews

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