EU frets over government meddling in Spanish, Italian banking mergers

BRUSSELS — Politicians might talk big about breaking down the national barriers that stop Europe competing with the U.S. and China, but everywhere you look they’re doing their best to keep the ones they think matter.

Take the EU’s Banking Union project, which first saw the light 15 years ago when the eurozone debt crisis nearly took the financial system down along with the single currency. Regulators have been pleading for years to let a fragmented banking market consolidate and create the kind of continent-wide institutions that can mobilize the vast sums needed to revive a stagnant economy. 

But national capitals continue to hobble any deal they see as a threat to local interests — so much so that the European Commission is now investigating Spain and Italy’s interference with big domestic banking mergers. It’s increasingly impatient with what it sees as unjustified attempts to block deals that antitrust regulators have already blessed.

In Spain, the government of Socialist Pedro Sánchez has imposed new conditions on Banco Bilbao Vizcaya Argentaria’s €12 billion hostile takeover bid for Catalonia’s Banco Sabadell, an extra layer of scrutiny that is only used in exceptional cases. BBVA swallowed hard and said on Monday that it will proceed with the deal, even though the government won’t let it absorb Sabadell fully for at least three years. 

That deal had already been approved by Spain’s national competition authority, while the Bank of Spain recommended the deal to the European Central Bank, which is the direct supervisor of both banks.  

“There is no basis to stop an operation based on a discretionary decision by a member state government” when the takeover has been cleared by the competent authorities, Commission spokesperson Olof Gill said.

For six months, the Commission has been having a back-and-forth with Madrid over the deal under a procedure called the EU Pilot — an informal dialogue between the EU and countries that can lead to formal infringement procedures. That process is ongoing.

“Spanish rules allow for government intervention on general interest grounds, on mergers that have already been reviewed by the competition authority, but this is extremely rare,” Pedro Callol, a Spanish antitrust lawyer, told POLITICO. The only time it has used the power, he said, was in a deal between broadcasters Antena 3 and La Sexta in 2012.

Roman intrigues

There were echoes of Madrid’s behavior in a similar case in Italy, where a bewilderingly complex and politicized struggle for control of the banking system is playing out. The government of Giorgia Meloni has saddled UniCredit’s bid for rival Banco BPM with so many conditions that UniCredit now says it makes no sense to proceed.

Rome did so by invoking its “golden power,” which was originally designed to stop foreign takeovers from threatening national security. That move did not go unnoticed in Brussels, where officials opened two distinct probes into the matter, led respectively by the financial services and the competition directorates. It has also triggered an exchange under the EU Pilot, and the Commission “is now assessing the reply of Italian authorities.”

Competition officials in Brussels cleared the deal with conditions on June 19, rejecting Rome’s request to hand the deal back to the national antitrust authority.

Competition officials also sent Rome a set of questions on its “golden power,” a Commission spokesperson told POLITICO, explaining that only in “exceptional” circumstances can a government interfere with a Brussels merger decision. National interventions in mergers aiming to protect a “legitimate interest,” they said, should be “appropriate, proportionate and non-discriminatory.”

There are broader concerns over Rome’s entanglements in the banking sector. Government officials have spoken privately of the need to build up a third force in Italian banking that would act as a counterweight to the dominant duo of UniCredit and Intesa Sanpaolo, which they hope would bolster credit access for the small firms and households that make up a sizable bulk of the ruling coalition’s electoral base.

According to Rome insiders, the government wants to build this “third pole” around Banca Monte dei Paschi di Siena (MPS), which has been under effective government control since the last in a series of expensive bailouts in 2017. The Commission only approved that bailout on the condition that Rome reduce its influence over the bank as quickly as practicable. With the conditions having been fulfilled, MPS is now on the hunt for acquisitions — with the backing of the government, which is still its largest shareholder, owning an 11.7 percent stake.

At first, Meloni’s government aimed to merge MPS with BPM, which bought a large stake in the Tuscan lender last year. When that was derailed by UniCredit, the government changed tack, supporting a surprise €12.5 billion bid by MPS for Milan-based investment bank Mediobanca. The target rejected the offer outright as having “no industrial rationale” and as being structured so as to create significant conflicts of interest at the shareholder level — an implicit complaint about the offer’s political dimensions.  

Both the EU executive and Milan prosecutors are now reportedly probing Rome’s handling of its sale of the MPS stake last November amid suggestions that it favored investors close to the government.

Vested interests and competitiveness concerns

The Commission’s frustration is due in part to the notion that banking consolidation, and the broader completion of a single market for financial services, is urgently needed to boost the bloc’s overall competitiveness. EU financial services chief Maria Luís Albuquerque is taking every chance to emphasize that Europe needs bigger banks to compete with U.S. and Chinese rivals. Currently, JPMorgan alone is worth as much as the eurozone’s eight biggest banks put together. Any move to stop such consolidation must be “proportionate and based on legitimate public interests,” spokesperson Gill said.

Rome’s three-party coalition may be keeping its cards close to its chest regarding its broader plans, but Spanish politicians haven’t even been trying to mask their motives. Jordi Turull, secretary-general of the Junts per Catalunya party that props up Pedro Sánchez’ minority government in Madrid, complained to TV3 that the Spanish National Commission of Markets and Competition and European authorities had only presented “technical reasons” for allowing BBVA to take over Sabadell.

“Now is the time for politics,” he said, arguing that “there are enough reasons” for the government to get involved.

Sánchez’ fragile minority government cannot pass legislation — nor a national budget — without the support of Catalan political parties that consider Sabadell’s independence a matter of regional pride. BBVA’s bid to take over the bank, which was founded in Barcelona over 100 years ago, has consistently faced broad political opposition in Catalonia. Separatist and unionist politicians have rallied around the bank, arguing the deal would reduce Sabadell’s presence in the region, particularly in already underserved rural area (they appear to have forgiven Sabadell’s rapid relocation of its domicile to the legal safety of Valencia when Catalonia pushed for independence back in 2017).

German roadblocks

Next in line for Commission scrutiny could be Germany, which is anything but keen for UniCredit to swallow Commerzbank, the country’s second-largest private sector bank. UniCredit CEO Andrea Orcel’s team received permission from the ECB in March to raise its stake to 29.9 percent. It currently holds 9.5 percent directly, and another 18.5 percent indirectly through derivatives, and has warned that converting those rights into physical shares still requires several other approvals, including from the German Federal Cartel Office.

But the new government in Berlin hasn’t signaled any greater willingness to allow a takeover than the previous one under Olaf Scholz. Berlin is still Commerzbank’s biggest shareholder, with a stake of 12 percent, and Chancellor Friedrich Merz told reporters in Rome last month that he didn’t see any need to discuss the deal with his Italian counterparts as it was not in the works for now.

Such roadblocks are giving Commerzbank the time to mount a vigorous defense. New CEO Bettina Orlopp announced a radical package of measures in February to improve profitability and get the bank’s market value up to a level where UniCredit would struggle to mount a full takeover. That package included some 3,300 job cuts in Germany — precisely the kind of thing that Commerzbank’s unions had been hoping to avoid when they lobbied the previous government to stop a takeover.

UniCredit is still holding on to the option of launching a full takeover, but in March accepted that any such process is likely to last well beyond the end of this year.

Aitor Hernández-Morales contributed to this report.