(Bloomberg Opinion) -- Earlier this month, my colleague Elisa Martinuzzi suggested that merging Deutsche Bank AG and UBS Group AG would, on paper at least, create a European banking champion. She concluded, though, that the regulatory obstacles to such a deal would probably be insurmountable. But there is a three-way combination that could create a regional lender with the heft to take on the U.S. banks without falling foul of national regulators.
Jean Pierre Mustier has done much house-cleaning in his two years as chief executive officer of Italy's UniCredit SpA. So it’s not much of a stretch to posit that he might regard himself as the right leader to forge a European powerhouse. And while his current institution owns HypoVereinsbank in Germany, it still depends on Italy for almost half of its revenue.
Mustier has already dallied with the idea of buying Commerzbank AG after talks between the German lender and Deutsche Bank broke down in April. Adding Commerzbank would increase his access to the small- and medium-sized German clients known as Mittelstand companies.
With Deutsche Bank still in intensive care, the German authorities should welcome the opportunity to see its other problem child adopted by UniCredit for many of the same reasons as they championed the mooted domestic tie-up. But to build a true challenger to the growing U.S. dominance of European lending, Mustier would need to add a third geographic region to his stable – and here his nationality might be key to overcoming tribal objections.
As a Frenchman running an Italian-German institution, Mustier would be well-placed to convince the authorities in Paris that Societe Generale SA would thrive under his stewardship.
Adding SocGen’s expertise in derivatives would expand the range of balance-sheet tools that Mustier can offer to those Mittelstand companies and other customers in Europe. And the newly merged triumvirate – let’s call it UniComSoc, ignoring the Orwellian overtones – would be a true regional champion.
In international bond underwriting, the trio would command a 6.3% market share based on the individual performance of the three banks in the first five months of this year. None of the trio is currently a top ten player; the merged group would rank behind only JPMorgan Chase & Co. with 7.2% of the market, and Citigroup Inc. with 6.9%.
In European equity offerings, the merged firm would sneak into a top 10 dominated by U.S. and Swiss firms, again based on market share through May:
But in European loans, a market worth almost 300 billion euros ($336 billion) so far this year, the combination would be a market-beating powerhouse with a share of almost 13 percent. Given European companies remain reliant on bank loans rather than the capital markets to satisfy the bulk of their funding needs, that’s the most important reservoir of capital and the one that European regulators would be keenest to see being provided by a leading domestic source.
The futures market is now starting to anticipate a cut in borrowing costs from a European Central Bank whose ultra-low interest rates have already weighed heavily on bank profitability. The worsening economic outlook that’s seen European government bond yields drop to record lows this week should add a sense of urgency to the acknowledged need for cross-border banking mergers.
If the combination of Deutsche Bank and Commerzbank turned out to be shooting for the moon, maybe Mustier should aim even higher to land among the stars.
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."
©2019 Bloomberg L.P.