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Western EuropeJuly 3 2005

UniCredit’s HVB deal does not signify a trend

It will take more than the Italian bank’s takeover of the less than attractive German institution to prompt a torrent of consolidation.
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Commentators say UniCredit’s takeover of HypoVereinsbank (HVB) will open the floodgates of European cross-border consolidation. The Banker begs to differ. A trend is not discernible when a profitable Italian bank takes over a German bank that has lost more money in 2004 than any other institution in the Top 1000 listing of global banks.

A trend is not discernible when it is unclear whether the Italian bank’s shareholders will benefit from entering the unprofitable German market and buying a bank that may have, according to analysts, further problems.

If the rationale behind the deal really is to expand in central and eastern Europe, rather than defend against a takeover of UniCredit, it makes little sense to buy a large exposure to an unprofitable German market. Private households in Germany in 2004 paid back more money than they borrowed, taking care of any growth in interest income. And 2005 seems no different.

The recently announced joint venture between Norwegian group DNB Nor and Germany’s Norddeutsche Landesbank in eastern and northern Europe would appear to achieve the same objective without the downside.

The most that can be said for the UniCredit-HVB deal in terms of trends is that the German government raised no protective barriers. But it appears to be a one-off deal: the possible holes in HVB’s balance sheet make it an attractive bank for a country to offload, but not for foreign shareholders to take on. Selling an ugly sister is no indication of a willing father when it comes to giving away the Deutsche Bank bride.

This is not to say there will not be some cross-border activity in the EU. Some deals, such as Santander’s bid for Abbey, have gone ahead. Others, such as the Italian bids by BBVA and ABN AMRO, have yet to be resolved because of pressure from the local regulator. In Viewpoint on page 24, Holland’s minister of finance, Gerrit Zalm, calls for changes in the EU supervisory approval process “to prevent some [supervisors from] member states protecting their markets from foreign entry”. This is a clear reference to, among others, Antonio Fazio, the governor of the Bank of Italy.

Regulators, however, are only one of the obstacles. Different legal and financial regimes are also relevant. Sometimes they can be overcome and a merger will be good for shareholders, customers and other stakeholders. But this is as relevant for cross-border deals beyond the EU as within it.

In any case, UniCredit-HVB looks to be neither good for shareholders nor the start of a trend.

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