ECB leans toward approving UniCredit's €43bn Commerzbank takeover

The European Central Bank is leaning toward approving UniCredit's €43 billion takeover of Commerzbank, finding "no grounds to object" while flagging a "challenging and long-lasting" integration requiring stronger governance at the Italian lender.

The document, presented last month to the ECB's Supervisory Board and seen by Reuters, offers a rare glimpse into deliberations over the biggest EU banking deal since the global financial crisis. Spokespeople for the ECB, German regulator BaFin, UniCredit and Commerzbank declined to comment on the document, which said the application remained incomplete and a final review would take place in September or October.

UniCredit has built a roughly 48 percent stake in Commerzbank through the €43 billion ($49.60 billion) hostile bid, prompting resistance from management, staff and the German government, although some opposition has recently softened. The Italian bank's market capitalization of €128 billion dwarfs Commerzbank's €44.2 billion, and its return on tangible equity of 19.2 percent more than doubles the German lender's 8.7 percent. UniCredit's cost-to-income ratio of 38 percent compares with Commerzbank's 57 percent, while the Italian bank generated €11.1 billion in net profit on €24.2 billion in revenue last year, versus €2.6 billion and €12.2 billion respectively for Commerzbank.

Approval from the ECB, which has long backed cross-border mergers to strengthen European Union integration, would remove the main regulatory hurdle to the deal. A final review is expected in September or October, with the ECB's Governing Council ratifying the Supervisory Board's decision. The combined entity would control roughly €1.37 trillion in assets — UniCredit's €784 billion plus Commerzbank's €590 billion — positioning it among Europe's largest lenders and potentially reshaping competitive dynamics across the continent's banking sector.

BaFin flags governance concerns at UniCredit

In the document, BaFin raised several previously unreported concerns about UniCredit's governance and conduct during the takeover. The German regulator, which had faulted some UniCredit adverts during its Commerzbank stake building, highlighted what it said was "aggressive and partially intransparent behaviour." It also cited "weaknesses in checks and balances" at UniCredit and called for stronger governance.

BaFin said the hostile nature of the bid had alienated Commerzbank management, staff, unions and political stakeholders, and that UniCredit would need a credible strategy to rebuild trust. UniCredit declined to comment on BaFin's views.

The German regulator's position carries particular weight given its role as the national supervisor for Commerzbank and its seat on the ECB's Supervisory Board, where national authorities' views are considered before a final decision. BaFin had previously ordered UniCredit to stop running what it deemed provocative adverts during the stake-building phase in April.

Integration risks remain despite preliminary approval

The ECB acknowledged many of the same challenges but concluded they did not justify blocking the transaction. It said concerns over UniCredit's board had already been addressed through supervisory measures, including more detailed board minutes and stronger oversight. Anti-money laundering shortcomings at its German subsidiary were also being remedied, the ECB said.

The ECB highlighted Commerzbank's size and complexity, cultural differences between the two banks and tensions created by UniCredit's hostile bid. It said cooperation was already difficult and warned that integration would carry material execution risks.

The ECB is also challenging UniCredit's assumptions that it would preserve a 12.5 percent capital ratio thanks to lower payouts even after taking a 51 percent stake. Such scrutiny is routine and does not indicate opposition. The document said UniCredit's integration plans lacked detail at the time of the presentation last month; a full application was submitted in late July.

The combined workforce of more than 112,000 employees — 75,000 at UniCredit and 37,621 at Commerzbank — faces significant restructuring uncertainty. The efficiency gap between the two banks, reflected in UniCredit's 19.2 percent return on tangible equity versus Commerzbank's 8.7 percent, highlights the scale of operational changes needed to make the merger work. The deal's outcome will also shape the trajectory of European banking consolidation, as other cross-border mergers may follow if this transaction succeeds.

This article is for informational purposes only and does not constitute investment advice.