“National consolidation would not help Banking Union”

Commerzbank Board Member responsible for Corporate Clients, Michael Kotzbauer on the Bank's Baltic strategy and why a takeover by Unicredit would not be a truly cross-border bank merger in the sense of a Banking Union.

Mr. Kotzbauer, shortly before Christmas Commerzbank opened its new office in Vilnius, Lithuania, to support clients from Lithuania, Latvia and Estonia. Why is Commerzbank pushing into the Baltics right now?
The region has strong innovation and good growth with a lot of dynamism – in all three countries. Germany is one of the most important trading partners. We are also seeing an increase of infrastructure projects and project financing linking the Baltic with the rest of Europe. The region has become very important for our corporate clients. So far, we have not been represented in the Baltic States. However, as Commerzbank always wants to be where our clients need us, we have opened our representative office in Vilnius.

How many corporate clients does Commerzbank have from the region or with a connection to the Baltic States?
The quality of the business is more important than the number of clients. We know that for us substantial clients are already there or have concrete investment plans in mind. When you talk to local business partners, you simply feel a completely different entrepreneurial dynamic than in Germany. For example, official approvals are implemented much faster, but investment issues are also very strongly supported politically.

Let's talk about the business case in the region. What business potential is there for Commerzbank in the Baltic States?
We plan to double our business volume by 2030.

Commerzbank has opened a representative office in Vilnius, not a branch. What is the difference?
Representative offices are our interfaces into the respective country. Its task is the transfer of know-how from the country to our clients. They maintain contact with business, the public sector, central banks, finance ministries, politics and international chambers of commerce. Representatives for foreign trade are therefore very important. In the end, they are like Commerzbank embassies abroad. They do not do operational business. This is what the international branches or our headquarters in Frankfurt do. They serve clients, run accounts and make loans.

What does it cost to maintain a branch abroad?
For a fully operational branch, including employees, office rental, IT and the like, international branches cost a lower double-digit million amount. Representative offices are, of course, much cheaper.

Banks have not only had good experiences in Lithuania. The biggest money laundering scandal in Europe was in Lithuania. Have you learned specific lessons from this?
Yes, sure. Since then, local banks and companies have engaged in massive de-risking and have reduced the non-resident portfolio. We also have a very robust compliance framework.

Given the geographical proximity to Russia, how do you assess the geopolitical risks to corporate banking in the region – especially with regard to infrastructure projects, which we know have a longer time horizon?
There are many Russian external borders in Europe, not only in the Baltic States. Of course, the threat situation is different today, but in Europe we must deal with it. I grew up in 1968 and at a time when the threat situation in Europe was even more present. Then, as now, we must deal with the situation, and the Baltic States, along with countries such as Sweden and Finland, now play a decisive role in defense. That is the perspective we need to take.

Barcelona, Bratislava, Budapest, Brussels, Hong Kong, Baghdad, Baku, Belgrade, Jakarta, Kuala Lumpur, Tbilisi, Minsk and Beirut. The Bank has recently abandoned all of these branches and representative offices …
Correct. However, we should consider the phase in which we were at that time. At the end of 2020, when we began to close the sites, Commerzbank was in a difficult economic situation. With the focused strategy 2024, we have come through this. Of course, we also worked to reduce our costs and complexity and, in this context, have also optimised our international network.

According to what criteria did Commerzbank clean up?
Let me give you an example, in Spain we had a branch in both Barcelona and Madrid. However, the main business was and is in Madrid, which is why we had a doubling in Spain, which we dissolved Barcelona. We have done the same with Brussels and Amsterdam in the Benelux region. The same applies to Hong Kong, where we have decided that with Shanghai and Beijing we are well positioned for the Greater China region. In retrospect, if I look at how client flows have shifted since then, that was also the right decision.

Did you say goodbye to all the countries where you closed the stores?
In some cases, we have also converted branches into representative offices, such as in Dubai or Sao Paulo. In our annual strategy process, we always look at where we have white spots on the world map, how goods and trade flows change, and then decide whether and how we need to respond. After all, we handle around 30% of Germany's foreign trade. That is why we have also opened new representative offices in Morocco and Jordan.

What white spots have you identified for 2025 that should be filled in?
We feel very comfortable with our existing international network in order to be the bridge from Germany to the world for our corporate clients. For us, it is crucial where our clients are increasingly on the move and what support they need from us in the respective countries. We feel quite well positioned in Asia and the USA – in Europe anyway. What we keep looking at is India.

Commerzbank is not there yet?
We have had a representative office in Mumbai for a long time.

Is India a candidate where a representative office could be upgraded to a branch?
At the moment, it would be too early to say.

Commerzbank also relies on partner banks abroad. In Eastern Europe, you work closely with the Austrian Erste Group. How does it work?
The cooperation came about after we sold our subsidiary in Hungary to Erste Group. We now work in nine Eastern European countries: Slovenia, Slovakia, Hungary, Croatia, Bosnia and Herzegovina, Serbia, Montenegro, Romania and North Macedonia. Our clients in these countries use the infrastructure, advisory services and products of the Erste Group. There is a cooperation agreement for this, which regulates this in detail.

The Erste Group accounts for the income. How does Commerzbank benefit?
We can offer solutions to our clients in Eastern Europe. Only today I was again with a German client to talk about the topic of relocating production to Eastern Europe.

For how many of your clients is this relevant?
I conduct several hundred client meetings each year. In every conversation, the location of production in Germany and the relocation abroad are discussed. Of course, not only to Eastern Europe, but also to the USA. If a company wants to be successful in the USA, it must also produce there at the end of the day. The same applies to China.

It is all the more important that we have large European banks with a certain power …
… Was that the nice transition?

Almost. After all, there is still a European bank that is supposed to be quite good in Eastern Europe.
You mean our subsidiary, mBank in Poland? (smiles)

We thought it was more Italian…
Yes, there is another bank worth mentioning.

Would Unicredit not be an exciting partner for Eastern Europe?
I live in the here and now, and the Erste Group is the partner of our choice in Eastern Europe.

After all, you are vehemently opposed to the idea of a takeover by Unicredit. Before Christmas, Italians raised their derivatives position to 18.59% – in addition to the 9.49% shares they already hold. Did that surprise you?
For us, the higher derivatives position has not changed anything. We take note of this and continue to focus on our own strategy.

How satisfied are you with how the defense fight has been so far – also with regard to support from Berlin?
We have always clearly communicated that we, as the executive board of a listed bank, examine every proposal in an open-ended manner. However, there is no offer that we could rate. We are firmly convinced of our strategy, which is based on independence and want the best for our three stakeholders. In addition to the shareholders, these are also our employees and our clients. Unicredit is an investor according to its own statement. That is why we are holding talks as with any other investor.

Do you think that a bank like Unicredit considers its investment in Commerzbank to be purely a financial investment? Unicredit is not a financial investor...
You need to talk to Unicredit about Unicredit's intentions. Currently, we treat Unicredit like any other investor. Our main focus is on adding value to our stakeholders.

For years, Europe has been talking about a Banking Union and major cross-border mergers to counterbalance the big US houses. In this context, would a merger between Commerzbank and Unicredit not make sense?
A merger with Unicredit would essentially be a national bank consolidation – not a European one.

Because Unicredit would probably combine HVB with Commerzbank?
Exactly. There are two key points that are often overlooked. If I wanted to have a fully efficient cross-border banking merger, it would need a Banking Union – and this is the entirely right discussion. But we don't have one. Liquidity and capital would continue on the German-Austrian border. We do not have a Banking Union in Europe, because, for example, we do not have a common European deposit guarantee. Germany, as you know, rejects it. Italy, in turn, rejects the ESM reform. We do not have a common capital market and a single securitisation market that we urgently need. A national bank merger would therefore not take the necessary Banking Union any further forward.

Of course, one could say that such a merger would increase political pressure.
Following this logic, we should already have a Banking Union today. HVB and Bank Austria have long been part of Unicredit. Both acquisitions, however, have not led us closer to the Banking and Capital Markets Union. The proof is therefore already provided that national consolidation does not help. That is my sober view of the facts.

You also like to argue that after a merger Commerzbank would be busy with itself for a long time again, which is bad for the client business.
That is the case. In 2009, I was head of a subproject for the integration of Dresdner Bank into Commerzbank. So, I know what it means when a bank is busy with itself. And when I look back, the years of integration were the starting point for the difficult years we experienced at Commerzbank between 2013 and 2020. A major bank merger always leads to client abrasion. This is what we are seeing in the merger of Credit Suisse and UBS.

To what extent?
Switzerland is one of our home markets. We have a branch office in Zurich. And although the integration of Credit Suisse into UBS is really going well, we are one of the big profiteers. Corporate clients do not want to put everything in one place and are looking for a second strong corporate client bank alongside UBS. This happens automatically in the event of a bank merger. We are therefore very pleased that our financial and capital market expertise is also highly appreciated by Swiss corporate clients.

What do your clients say about Unicredit?
This question was also addressed in a survey conducted by Finance magazine in October 2024 among around 170 CFOs, finance managers and treasurers. Result: two-thirds of the respondents are skeptical – and 77% of the financial decision makers who have us as their main bank, rate a takeover as "negative" or "rather negative".

From my conversations with our corporate clients, I understand that they want a bank to make their credit decision in Germany. At the Commerzbank board level, we can decide on any loan in Frankfurt. In addition, corporate clients want an advisor who they can look in the eyes. And the deeper you go into small and medium-sized businesses, the more important this topic becomes.

How many of your corporate clients have a client relationship with Unicredit?
We know our clients and know very well which banks are still involved there. Our medium-sized business ranges from small corporate clients to SMEs and international large corporations. We therefore cover the entire breadth of German medium-sized businesses and the German corporate client landscape. No matter how another bank cuts its SME segment, there will be very likely overlaps.

Are you fundamentally opposed to a merger with another bank, or would you be open to another bank that might be a little more friendly and better suited to Commerzbank? With the first group, you seem to complement each other well – and your half board of directors is currently coming from there …
Well, then the matter is clear. (Laughs) Joking aside, we talked about the real issue just now: we need the Banking Union first.

Until we have a Banking Union, is there no question of a merger for you?
I did not say that. I have said that the Banking Union is crucial to the usefulness of a cross-border bank merger. If we have the Capital Markets and Banking Union, other options will of course also emerge. But the reality is that we still have a lot of minor details in Europe. That is the big difference to the US, which has a single capital and securitisation market. The current debate on national bank consolidation is, in my opinion, the wrong one.

What would be the right debate?
We need to talk more about our competitiveness and take care in Germany not to fall back further. Germany and Europe must remain attractive locations for both industry and capital. The size of a German or European bank plays a minor role. In addition to banks and the public sector, private capital and the securitisation market are particularly important for the large infrastructure projects that are necessary. We have to do this homework. Only if we can achieve this will we really have an integrated European market. The rest, including cross-border bank mergers, will come after this – but not the other way around.

In 2024, no other industry in Germany spent as much on lobbying as the financial sector – around 40 million Euro. Does it need more?
Above all, more discussion and opinion is needed! In addition to bureaucracy, we also have an attitude and mindset issue in Germany and must again look to become more attractive as a location. Competitiveness is a great asset because it creates wealth, attracts investment and creates jobs. When I read that 10,000 jobs are being cut here in a company and 14,000 jobs are being cut there, that is an alarming signal. We are in competition with other countries – whether we want that or not. And we need to learn to be more attractive again.

How about the Baltic countries?
We can certainly learn something from these. The bureaucracy there is very lean, and the administration is highly digitised. Approvals are done very quickly. When we were in Lithuania in the run-up to our inauguration, we had discussions with three ministries within one and a half days. The policy there wants to attract investment and therefore has a completely different attitude – they want to be attractive and competitive. And I believe that we in Germany must return to this position. We are a rich country, we do not have a state deficit like other countries. But prosperity must be built.

The interview was published with the kind permission of Börsen-Zeitung.