ECB Chief Backs Bank Mergers Amid UniCredit, Commerzbank Talk

ECB chief Christine Lagarde said Monday that cross-border banking mergers in Europe were "desirable" to boost their competitiveness, despite mounting German opposition to a potential tie-up between Commerzbank and Italy's UniCredit.

"Cross-border mergers (between) banks that can actually compete at the scale, at the depth and at the range with other institutions around the world, including the American banks or the Chinese banks, is in my view desirable," the European Central Bank president told the European Parliament.

UniCredit has taken Germany by surprise by building a position in Commerzbank equivalent to about 21 percent since the start of September, fuelling speculation of a potential takeover.

German unions and politicians have voiced fears that an acquisition of the country's second-largest lender could lead to job losses and curtail lending to Germany's small and midsize businesses.

But European policymakers have for years been pushing for deeper integration of eurozone financial markets, including through banking sector consolidation, saying it is necessary to create financial institutions capable of competing internationally.

At a hearing of the European Parliament's committee on economic and monetary affairs, Lagarde refused to comment on specific cases when asked about a potential merger between the Italian and German banks.

But she made her general views clear: "If banks are relatively small, if their profitability is relatively low, if their scope and scale is significantly smaller, they stand at a competitive disadvantage."

She did however acknowledge that mergers also bring "risks that need to be considered", while offering reassurances that the ECB would "do its job" by carefully reviewing any proposal.

In the eurozone, the ECB's Single Supervisory Mechanism will have to check that UniCredit has complied with banking rules in its rapid acquisition of its stake in Commerzbank.

Italy's second-biggest bank is also seeking ECB permission to raise its stake to 29.9 percent, just short of the 30 percent threshold that would require it to make a public offer for the entire bank.

Chancellor Olaf Scholz has come out against a takeover, warning the Italian lender against "unfriendly" acts.

Before Lagarde made her remarks, an economist who chairs a panel advising Scholz's government said the arguments against a potential tie-up were "unconvincing".

"In principle, there is no objection to a German bank being acquired by a foreign bank," Monika Schnitzer told AFP by email.

"The objections raised by some regarding job losses and reduced financing for German SMEs are unconvincing," she added.

"An increase in productivity is necessary to become more competitive internationally. And a foreign bank would also want to do business, which includes granting loans," Schnitzer said.

Commerzbank has vowed to fight any takeover attempt and the German government has pledged support for the bank's strategy to remain independent.

The Frankfurt-based lender last week raised its profit forecasts and announced plans to better reward shareholders, hoping to boost its share price and make a takeover more expensive.

The German government for its part still holds a 12 percent stake in Commerzbank, after selling a 4.5 percent bloc of shares earlier this month that was snapped up by UniCredit.

Berlin has since said it will not sell any more shares for the time being.