The Decline of German Major Banks: Commerzbank and UniCredit
A Historical Overview
Almost 30 years ago, a helicopter approached the newly erected Commerzbank tower in Frankfurt’s banking district. It was transporting a 40.04-meter antenna, which crowned the skyscraper, then the tallest office building in Europe at 298.74 meters. At that time, it was unimaginable that an Italian major bank might soon seek to acquire four of the five major private banks in Germany.
A Troubled Alliance in Bavaria
The history of the former Bayerische Vereinsbank and the Bayerische Hypotheken- und Wechsel-Bank, now part of UniCredit since the late 1990s, highlights the difficulties in the German banking landscape. These banks were forced to merge into HypoVereinsbank due to pressure from Bavarian authorities and large insurance companies. Interestingly, they did not appear as major banks in official statistics; instead, they were classified as mixed institutions, despite functioning similarly to universal banks. The merger aimed to prevent the Deutsche Bank from acquiring the profitable Bayerische Vereinsbank, but internal disputes soon surfaced due to the significant debts inherited from the Bayerische Hypotheken- und Wechsel-Bank. Just seven years later, HypoVereinsbank was unable to operate independently and sold itself to UniCredit.
The “Bad Bank” Scenario
Today, UniCredit holds nearly 50% of Commerzbank, which had to merge with the struggling Dresdner Bank during the financial crisis. This move was largely politically motivated to stabilize its overwhelmed owner, Allianz AG. The German government used Commerzbank as a “bad bank” to manage the risks associated with Dresdner Bank—a relationship that demanded substantial state assistance. Despite efforts to integrate Dresdner Bank, the merger did not result in a strong banking institution. Consequently, no domestic “white knight” has emerged to challenge UniCredit’s influence, making it unlikely that the Italian bank will not increase its stake beyond 50%.
Market Dynamics and Financial Valuation
Historically, Frankfurt bankers viewed their counterparts in France, Spain, or Italy with disdain. However, the current reality is sobering. Major European banks like Spain’s Santander, Switzerland’s UBS, France’s BNP Paribas, and Italy’s UniCredit are all valued over €100 billion. In comparison, Deutsche Bank stands at €57 billion, while Commerzbank lags behind at €42 billion. This shows clearly that German major banks are now playing in the second division of European finance.
Challenges of the German Three-Pillar Model
Several trends illustrate the decline of major German banks within a landscape where larger private banking conglomerates have thrived. The traditional three-pillar model in German banking—including public, cooperative, and private banks—has stagnated under the influence of savings banks’ organizations, while many countries have allowed mergers across these pillars. Furthermore, larger German banks have struggled to form robust strategies after the dissolution of the “Deutschland AG,” especially in an era characterized by global financial markets. Over nearly three decades, poor management decisions have severely hindered the consolidation of private major banks.
The Rise and Decline of Private Initiatives
Around the turn of the millennium, Commerzbank attempted to acquire savings banks in Stralsund and Frankfurt but faced resolute opposition. In Italy, however, reforms were underway, focusing on the privatization of savings banks. While Commerzbank was thwarted by political resistance, in Italy, banks like Credito Italiano capitalized on similar mergers, transforming into UniCredit and leading to the emergence of Intesa Sanpaolo.
An Outdated Banking Framework
The German banking system has become increasingly unique due to the significant share of public banks, as highlighted by the German Institute for Economic Research. Unlike countries such as Italy, France, and Spain, where public ownership is minimal, over 40% of German banking assets are still publicly held. Even during the financial crises of 2008 and 2009, the private banks did not significantly benefit from the failures of the Landesbanken. The publicly-received financial aid did not translate into opportunities for the private entities.
The Transition Towards Globalization
The end of the “Deutschland AG” and the onset of globalization resulted in the dissolution of interlocked capital participations among banks, insurance companies, and industries. This departure from a domestic-centric banking approach catalyzed a wave of speculative behaviors among banks. The focus on investment banking, fueled by deregulation and market liquidity, has proven perilous, leading to immense capital loss during the financial crisis.
A Colossal Decline
In retrospect, the attempts to consolidate German banking have largely failed. The HypoVereinsbank merger only ended with UniCredit acquiring it. Meanwhile, past initiatives to merge Deutsche Bank and Dresdner Bank fell through, exemplifying how sheer size doesn’t guarantee quality. Hartmut Berghoff summarizes this decline aptly: the once-respected Dresdner Bank has vanished, Commerzbank required taxpayer bailouts, and Deutsche Bank, still the market leader, has become increasingly less significant on the global stage.
Conclusion
The narrative of Commerzbank and UniCredit encapsulates the broader challenges facing German major banks today—an inability to adapt and merge, a stagnated three-pillar system, and insufficient public support in times of crisis. The outlook remains uncertain as the landscape evolves, doing little to restore Germany’s banking prestige in a competitive, globalized environment.
