Finance

What buying Commerzbank would mean for UniCredit and German banks

Published

3 months ago

September 19, 2024

Business Finance News

The Commerzbank building (second from right) in Frankfurt am Main, western Germany, on Sept. 25, 2023.

Kirill Kudryavtsev | Afp | Getty Images

UniCredit‘s move to take a stake in German lender Commerzbank is raising questions on whether a long awaited cross-border merger could spur more acquisitions and shake up the European banking sector.

Last week, UniCredit announced it had taken a 9% stake in Commerzbank, confirming that half of this shareholding was acquired from the government. Berlin has been a major shareholder of Commerzbank since it injected 18.2 billion euros ($20.2 billion) to rescue the lender during the 2008 financial crisis.

UniCredit also expressed an interest in a merger of the two, with the Italian bank’s CEO Andrea Orcel telling Bloomberg TV that “all options are on the table,” citing the possibility that it either takes no further action or buys in the open market. Commerzbank has given a more lukewarm response to the merger proposals.

UniCredit's bid for Commerzbank is next 'logical step' for the bank's strategy, analyst says

But analysts have welcomed the move by UniCredit, particularly because a tie-up might spur similar activity in Europe’s banking sector — which is often seen as more fragmented than in the U.S., with regulatory hurdles and legacy issues providing obstacles to mega deals.

Right fit for UniCredit?

So far, the market has responded positively to UniCredit’s move. Commerzbank shares jumped 20% on the day UniCredit’s stake was announced. Shares of the German lender are up around 48% so far this year and added another 3% on Wednesday.

Investors appreciate the geographical overlap between the two banks, the consistency in financials and an assumption that the transaction is “collaborative” in nature, UBS analysts, led by Ignacio Cerezo, said in a research note last week. According to UBS, the ball is now in Commerzbank’s court.

Analysts at Berenberg said in a note last week that a potential merger deal, “should, in theory, have a limited effect on UniCredit’s capital distribution plans.” They said that while there is “strategic merit” in a deal, the immediate financial benefits might be modest for UniCredit, with potential risks from the cross-border deal diminishing some of the benefit.

UniCredit's Orcel is targeting Commerzbank at the 'best moment,' analyst says

David Benamou, chief investment officer at Axiom Alternative Investments, hailed Orcel’s decision to take a stake in Commerzbank as a “fantastic move” that makes sense because of the increase in German market share it would grant UniCredit.

As Commerzbank “missed on costs in Q2 [the second quarter], currently it’s at a very low valuation, so the moment [Orcel] stepped in, is probably one of the best moments he could have,” Benamou told CNBC’s “Squawk Box Europe” last week.

When asked how imminent a takeover was in the short term, Benamou suggested it was possible, saying, “they will probably come to it.”

According to Arnaud Journois, senior vice president of European Financial Institution Ratings at Morningstar DBRS, UniCredit is already on its way to becoming a leading bank in Europe.

He told CNBC’s “Street Signs Europe” Wednesday that there was a “double logic” behind UniCredit’s move as it enables the Italian lender to access both the German and Polish markets where Commerzbank currently operates.

“UniCredit has been very active in the past two years, doing a few targeted acquisitions … So this is the next logical step,” Journois said.

UniCredit continues to surprise markets with some stellar quarterly profit beats. It earned 8.6 billion euros last year (up 54% year-on-year), also pleasing investors via share buybacks and dividends.

What does it mean for the sector?

Analysts are hoping that a move by UniCredit will encourage more cross-border consolidation. European officials have been making more and more comments about the need for bigger banks. French President Emmanuel Macron, for example, said in May in an interview with Bloomberg that Europe’s banking sector needs greater consolidation.

“European countries might be partners, but they are still competing sometimes. So, I know that from an EU standpoint — policymaker standpoint — there is appetite for more consolidation to happen. However, we think that there are a few hurdles that make that difficult, especially on the regulatory side,” Journois told CNBC.

A cross-border styled merger between UniCredit and Commerzbank would be more preferential than a domestic merger between Deutsche Bank and Commerzbank, according to Reint Gropp, president of the Hall Institute for Economic Research.

“The German banking structure is long overdue for a consolidation process. Essentially, Germany still has almost half of all banks in the euro zone, that’s significantly more than its share in GDP. So any consolidation process would be welcome now,” Gropp told CNBC’s “Street Signs Europe” on Wednesday.

He noted that Commerzbank has always been a “big candidate for a takeover” in the German banking sector because most of the other banks in the country are savings banks which cannot be taken over by private institutions, or cooperative banks which are also difficult takeover targets.

Will Deutsche Bank swoop?

Deutsche Bank, which was still seen as the prime contender to take over Commerzbank following an abrupt collapse of initial talks in 2019, is said to be mounting its own defense strategy in the wake of UniCredit’s stake.

Filippo Alloatti, head of financials at Federated Hermes, said Deutsche Bank is unlikely to present a strong rival offer for Commerzbank.

With a CET1 ratio of 13.5% compared to its target of 13%, Deutsche Bank is rather “limited.” CET ratios are used to gauge the financial strength of a lender. The German bank also has less excess capital than UniCredit and therefore “cannot really afford” a takeover, Alloatti said.

ECB has no grounds to block UniCredit's higher Commerzbank stake: Federated Hermes

However, Deutsche Bank could put on a “brave face,” Alloatti suggested, and consider another target such as ABN Amro. The Dutch bank, which was also bailed out during the 2008 financial crisis by the state, has been the subject of acquisition speculation.

“We’ve been waiting for this,” Alloatti said, speaking about the potential for further consolidation in the sector. “If they [UniCredit] are successful, then of course, other management teams will study this case,” he said, noting that there was also scope in Italy for domestic consolidation.

Gropp acknowledged that UniCredit’s CEO had made a “very bold move” that caught both the German government and Commerzbank by surprise.

“But maybe we need a bold move to effect any changes at all in the European banking system, which is long overdue,” he said.

What’s next?

In comments reported by Reuters, Commerzbank’s Chief Executive Manfred Knof told reporters on Monday that he would look at any proposals from UniCredit in line with the bank’s obligations to its stakeholders.

Knof informed the bank’s supervisory board last week that he would not seek an extension of his contract which runs until the end of 2025. German newspaper Handelsblatt reported that the board might be considering an earlier change of leadership.

The supervisory board at Commerzbank will meet next week to discuss UniCredit’s stake, people familiar with the matter who preferred to remain anonymous told CNBC. There are no plans to replace Knof as soon as that meeting, the sources added.

– CNBC’s Annette Weisbach, Silvia Amaro and Ruxandra Iordache contributed to this report.

Finance

Treasury delays deadline for small businesses to file new BOI form

Published

10 hours ago

December 26, 2024

Business Finance News

Janet Yellen, U.S. Treasury secretary, on a tour of the Financial Crimes Enforcement Network (FinCEN) in Vienna, Virginia, on Jan. 8, 2024.

Valerie Plesch/Bloomberg via Getty Images

The U.S. Treasury Department has delayed the deadline for millions of small businesses to Jan. 13, 2025, to file a new form, known as a Beneficial Ownership Information report.

The Treasury had initially required many businesses to file the report to the agency’s Financial Crimes Enforcement Network, known as FinCEN, by Jan. 1. Noncompliance carries potential fines that could exceed $10,000.

This delay comes as a result of legal challenges to the new reporting requirement under the Corporate Transparency Act.

The rule applies to about 32.6 million businesses, including certain corporations, limited liability companies and others, according to federal estimates.

Businesses and owners that didn’t comply would potentially face civil penalties of up to $591 a day, adjusted for inflation, according to FinCEN. They could also face up to $10,000 in criminal fines and up to two years in prison.

However, many small businesses are exempt. For example, those with over $5 million in gross sales and more than 20 full-time employees may not need to file a report.

Why Treasury delayed the BOI reporting requirement

The Treasury delayed the compliance deadline following a recent court ruling.

A federal court in Texas on Dec. 3 had issued a nationwide preliminary injunction that temporarily blocked FinCEN from enforcing the rule. However, the 5th U.S. Circuit Court of Appeals reversed that injunction on Monday.

CNBC Small Business Survey finds confidence rising among small businesses

“Because the Department of the Treasury recognizes that reporting companies may need additional time to comply given the period when the preliminary injunction had been in effect, we have extended the reporting deadline,” according to the FinCEN website.

FinCEN didn’t return a request from CNBC for comment about the number of businesses that have filed a BOI report to date.

Some data, however, suggests few have done so.

The federal government had received about 9.5 million filings as of Dec. 1, according to statistics that FinCEN provided to the office of Rep. French Hill, R-Ark. That figure is about 30% of the estimated total.

Hill has called for the repeal of the Corporate Transparency Act, passed in 2021, which created the BOI requirement. Hill’s office provided the data to CNBC.

“Most non-exempt reporting companies have not filed their initial reports, presumably because they are unaware of the requirement,” Daniel Stipano, a partner at law firm Davis Polk & Wardwell, wrote in an e-mail.

There’s a potential silver lining for businesses: It’s “unlikely” FinCEN would impose financial penalties “except in cases of bad faith or intentional violations,” Stipano said.

“In its public statements, FinCEN has made clear that its primary goal at this point is to educate the public about the requirement, as opposed to taking enforcement actions against noncompliant companies,” he said.

Certain businesses are exempt from BOI filing

The BOI filing isn’t an annual requirement. Businesses only need to resubmit the form to update or correct information.

Many exempt businesses — such as large companies, banks, credit unions, tax-exempt entities and public utilities — already furnish similar data.

Businesses have different compliance deadlines depending on when they were formed.

For example, those created or registered before 2024 have until Jan. 13, 2025, to file their initial BOI reports, according to FinCEN. Those that do so on or after Jan. 1, 2025, have 30 days to file a report.

There will likely be additional court rulings that could impact reporting, Stipano said.

For one, litigation is ongoing in the 5th Circuit, which hasn’t formally ruled on the constitutionality of the Corporate Transparency Act.

“Judicial actions challenging the law have been brought in multiple jurisdictions, and these actions may eventually reach the Supreme Court,” he wrote. “As of now, it is unclear whether the incoming Trump administration will continue to support the Government’s position in these cases.”