ECB's role in any UniCredit and Commerzbank combination

UniCredit, Italy’s second-largest bank, has taken a 9 per cent stake in Germany’s Commerzbank and is seeking permission to potentially raise this to 29.9 per cent, sources told Reuters, while saying it would be open to a full takeover bid.

For UniCredit to raise its Commerzbank stake above 10 per cent will, however, need approval from the European Central Bank, the supervisor of the eurozone’s biggest banks.

Here is a summary of the ECB’s role in the process.

When does ECB step in?

ECB approval is required if a shareholder wants to acquire 10 per cent or more in a supervised lender. There are additional thresholds at 20 per cent, 30 per cent and 50 per cent. A buyer, however, can apply to acquire any stake, so it can skip interim reviews if it is cleared already for a larger stake.

What does the ECB examine?

UniCredit will have to tell the ECB its ultimate aim and supervisors will evaluate its proposal in light of this.

It examines factors such as the buyer’s reputation, the quality of board members it would appoint, the buyer’s financial health and the ability of the target to comply with supervisory requirements.

The criteria give some leeway, but essentially the ECB would have to decide if UniCredit could afford to buy Commerzbank and remain financially sound, and if it would form a stronger group.

UniCredit is a capital-rich bank with plenty of cash and solid profitability. It has a common equity tier 1 (CET1) capital ratio of 16.2 per cent, well above its target of 12.5 per cent-13.0 per cent despite a generous dividend and share buy-back programme.

Would the ECB support a merger?

It is hard to say without knowing UniCredit’s specific objectives. But there are clues suggesting that if structured in the right way, the ECB could support it.

The ECB has repeatedly said that cross border mergers are desirable given inefficiency and high costs in the euro zone bank sector. Euro zone banks are also falling behind their far larger U.S. peers.

“Cross-border mergers have been hoped for by many authorities, and it will be very interesting to see that process unfold in the weeks to come,” ECB President Christine Lagarde said last week.

Bundesbank chief Joachim Nagel has so far been rather neutral, but has outlined requirements for support.

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