Implications for Banking M&A Activity in the Italian Market with a Potential UniCredit-Commerzbank Combination

While Morningstar DBRS continues to monitor the developments around the investment of UniCredit Group (UniCredit or UCG) in Commerzbank, which could lead to several possible outcomes, including a merger of the banks, it has assessed the near-term implications for banking mergers and acquisitions (M&A) activity in Italy should this deal move forward.

For some time, UCG has been regarded as one of the most obvious aggregators for further banking consolidation in the Italian market, especially as it appeared to have the appetite to boost its market share in Italy after a long restructuring period. In fact, UniCredit considered acquiring Banca Monte dei Paschi di Siena (BMPS) in 2021, but negotiations with the Italian Ministry of Economy and Finance collapsed.

A merger of UniCredit with Commerzbank could change the M&A landscape in Italy. Although Morningstar DBRS believes that there is room for further consolidation in Italy, a potential UniCredit-Commerzbank deal reduces the chance of large domestic transactions in the short-to-medium term. The merger would be a complex transaction, and it would keep both banks busy for some time; as a result, it is unlikely that UCG would make further sizeable acquisitions during this period.

Furthermore, Italy's domestic champion, Intesa Sanpaolo (rated BBB (high) with Stable trend) could also be constrained in carrying out a large local acquisition by potential antitrust hurdles as a result of its already large market shares nationwide, which have grown further with the acquisition of Unione di Banche Italiane (UBI) in 2020.

Consolidation among medium-sized players also seems unlikely in the short term. In recent public interviews, various banks' chief executive officers have ruled out large M&A deals, at least for the time being. Instead, the execution of standalone business plans seems to be the current priority. For instance, Banco BPM (rated BBB with a Positive trend) released a new business plan in December 2023, while BPER Banca (rated BBB with a Positive trend), which has recently grown after its acquisition of Banca Carige and assets from UBI, is expected to announce its new plan on 10 October. A potential M&A scenario, however, remains open for BMPS (rated BB (high) with a Positive trend). BMPS is currently in the process of privatisation by its major shareholder, the Italian Ministry of Economy and Finance, which has announced a further reduction of its stake by the end of 2024.

Finally, a UniCredit-Commerzbank merger could potentially create opportunities for UCG`s competitors in the Italian market. First, it removes any threat from a larger domestic competitor in Italy. Second, while UniCredit and Commerzbank would be working on their integration, competitors in both the Italian and German markets would be able to exploit the potential business opportunities that would likely result from the natural disruption such a deal would cause.