UniCredit's Orcel takes aim at Europe's banking borders with Commerzbank bet

For decades, Andrea Orcel was the ‘rainmaker’ who CEOs turned to for advice on the big deals that reshaped the banking landscape.

Now, as UniCredit chief executive, the Italian has set himself his biggest test so far — breaking down Europe’s deeply entrenched political resistance to cross-border mergers.

Orcel signalled his merger ambitions last week when his Italian bank swooped on Commerzbank, becoming its second-biggest shareholder behind the German government, which holds a stake after a crisis-era rescue.

UniCredit’s move — codenamed ‘Flash’ after Orcel’s dog — has triggered a frenzied search for direction in Berlin, opposition from labour unions and a defence strategy from Germany’s second-largest listed lender.

Orcel now wants to start talks on a combination he says would “create a much stronger competitor” in Germany. His gambit comes after years of calls for Europe to improve its banks’ competitiveness in the face of larger US and Asian rivals.

He faces big hurdles.

Cross-border European banking deals have been stymied by factors including years of paltry profitability that have left lenders too weak to try. And regulatory barriers to moving resources freely across borders have been reinforced by a preference for home-grown ‘champions’ among politicians.

A turnaround of UniCredit has overcome one of the obstacles. The bank, unlike rivals, has the financial firepower for a bold combination after reaping bumper profits.

But national politics will be the hard part.

“Most European countries have overpriced banking services because they are in the hands of a handful of local banks,” said Karel Lannoo of the Centre for European Policy Studies.

“The German reaction to UniCredit’s interest in Commerzbank shows the resistance to changing this,” Lannoo said. “It is the Italians coming to teach the Germans a lesson in the free market and the Germans don’t like it.”

Some in Germany’s government have been annoyed by what they saw as a stealth move by UniCredit, which built up its 9 per cent stake overnight, one source told Reuters.

UniCredit said it had been transparent with its move, which comes at a delicate time in Germany, with its coalition government, one of the most unpopular in recent history, preparing for national elections next year.

Recent gains for the far-right and far-left are squeezing the three-party coalition and, in particular, the smallest member, the liberal FDP party, which runs the finance ministry.

Meanwhile, Rome views Milan-based UniCredit’s efforts to build a large European bank favourably as long as it keeps its central functions in Italy, sources close to the matter said.

Nonetheless, Italy is keeping its distance and there are no moves to back UniCredit’s foray, a senior official told Reuters.

‘Country blind’

A UniCredit-Commerzbank tie-up would be the biggest cross-border European banking deal since the global financial crisis.

Orcel is betting UniCredit’s existing ties in Germany — it owns already owns German lender HVB — and ambition for a combined group will persuade politicians.

“Europe needs banks that are capable to support each industry and the development of Europe so that we are an economic bloc that can hold its own against the US and China,” Orcel told Bloomberg last week.

This echoes a long-running message from officials in Brussels, Europe’s political meeting point.

“The moment you go across borders and there’s little overlap, it becomes just more difficult.”