The developments in relation to the movement of the Italian UniCredit to acquire 9% of the German Commerzbank have shaken up the European banking map as they raise reasonable questions about whether such a cross-border takeover could trigger more bank takeovers or mergers.

Battle for Commerzbank – Reservations from the German government

The German government, a major shareholder of Commerzbank since it bailed out the bank with 18.2 billion euros during the 2008 crisis, does not look favorably on the takeover, especially since the news was accompanied by a statement from the CEO of the Italian of the banking giant, Andrea Orsel, to Bloomberg that a full takeover of the German lender is an option. “All options are on the table,” said the UniCredit executive.

According to reports of the last few days in the international press, the Italian bank is likely to submit an application to the European Central Bank, as the highest regulatory authority for the banking industry, for the acquisition of a larger percentage, up to 30%, without, however, binding the UniCredit.

ECB officials, including President Christine Lagarde, have signaled their support for such a deal, which could potentially fulfill long-held ambitions for large cross-border mergers.

After all, this is in line with former ECB president Mario Draghi’s proposals in his recent report on how to boost Europe’s competitiveness, including using competition policy to enable consolidation that will make it easier for European companies to compete on the global stage.

Along the same lines, the new EU Competition Commissioner, the Spanish socialist Teresa Ribera, chosen by Ursula von der Leyen to succeed Margrethe Vestager, stated in the past days her intention to move towards a policy of “greater support for companies that are growing ».

But analysts also welcomed UniCredit’s move, particularly given that such a takeover could spur similar activity in Europe’s banking sector – which is often seen as more fragmented than in the US, with regulatory hurdles and antiquated regulations preventing big deals.

The pulse of the market

So far, the market has responded positively to UniCredit’s move. Commerzbank shares jumped 20% on the day the 9% acquisition was announced. Shares of the German bank have soared about 48% so far this year and continued to rise on Wednesday

UBS analysts pointed out in their note that investors appreciate the geographical “marriage” that this particular acquisition marks, the effect on the financials. According to UBS, the ball is now in Commerzbank’s court.

On the other hand, Berenberg analysts said a potential merger deal “should, in theory, have a limited impact on UniCredit’s capital distribution plans.” They said that while there is “strategic value” in a deal, the immediate financial benefits may be modest for UniCredit, with potential risks from the cross-border deal reducing some of the benefit.

David Benamou, chief investment officer at Axiom Alternative Investments, hailed Orschel’s decision to buy a stake in Commerzbank as a “fantastic move” that serves to increase UniCredit’s share of the German banking market.

He commented, speaking to CNBC, that as Commerzbank “missed its Q2 forecast, it is currently very undervalued, so the moment [ο Ορσέλ] stepped in, it’s probably one of the best moments he could pull off.”

And according to Arnaud Journois, senior vice president of European Financial Institutions Rating at Morningstar DBRS, UniCredit is already on track to become the top bank in Europe. He, speaking to CNBC, saw a “dual logic” behind UniCredit’s move, as it allows it to access both the German and Polish markets where Commerzbank operates. “UniCredit has been very active over the last couple of years, making some targeted acquisitions … So this is the next logical step,” Journois said.

What it means for the banking system

Analysts hope a move by UniCredit will encourage more cross-border mergers and acquisitions. European officials are increasingly commenting on the need for bigger banks. French President Emmanuel Macron, for example, said in an interview with Bloomberg in May that Europe’s banking sector needs greater integration.

“European countries may be partners, but they still compete at some levels. From the EU’s point of view—from the policymakers’ point of view—there is a mood for more integration. However, we think there are some hurdles that make it difficult, especially on the regulatory side,” Journois said.

A cross-border merger between UniCredit and Commerzbank would have more advantages 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 has long delayed a resolution process. In fact, Germany still has almost half of the banks in the eurozone, which is significantly larger than its share of eurozone GDP. So any consolidation process would be welcome now,” Gropp told CNBC.

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

However, Deutsche Bank could have a “bold” target, Alloatti added, 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 takeover speculation.

Gropp acknowledged that UniCredit’s CEO had made a “very bold move” that caught both the German government and Commerzbank by surprise. “But we may need a bold move to bring about any changes to the European banking system, which is long overdue,” he added.

The next day

Speaking to Reuters, Commerzbank Chief Executive Manfred Knof said he would consider any proposals from UniCredit, based on the bank’s obligations to its shareholders.

Knof informed the bank’s supervisory board last week that he would not seek an extension to his contract, which runs until the end of 2025.

Germany’s Handelsblatt reported that the board may consider an earlier leadership change.

Commerzbank’s supervisory board will meet next week to discuss UniCredit’s proposal, people familiar with the matter told CNBC. There are no plans to replace Knof immediately after the meeting, the sources added.

However, Reuters sources said on Wednesday that Commerzbank CFO Bettina Orlop is expected to take on the difficult task of negotiating with UniCredit when the German bank’s supervisory board meets next week.