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UniCredito/HVB: a cross-continental colossus

13th June 2005

UniCredito has acquired HVB in Europe's largest cross-border banking tie-up.

Italy's second largest bank, UniCredito, has initiated Europe's biggest ever cross-border banking merger by acquiring Germany's HVB Group. This will prove a boost not only for UniCredito, but for banking in the emerging markets of central and eastern Europe in particular, within which the newly-merged entity is likely to be a key player.

This all-share offer, which includes Bank Austria and Poland's BPH, is the biggest in Europe to date and follows last year's successful GBP9.6 billion takeover of Abbey by Spain's Santander. Evidently, despite being more divided than ever on the political front, Europe is witnessing another massive push towards consolidation in its banking market. The latest merger will create a Europe-wide financial powerhouse with over 28 million customers and 7,000 banking branches.

HVB put up little resistance to this merger, reported to be worth E19.2 billion in total, following talks that began in May. Itself created through the merger of two banks, namely Bayerische Vereinsbank and Hypo-Bank, HVB has suffered heavily as a result of overexposure in its property portfolio and the collapse of the German construction market. UniCredito, on the other hand, finished 2004 as Italy's most profitable bank with a net profit of E2.13 billion.

The takeover will make UniCredito Europe's eighth-largest bank by assets. However, it is its central and eastern European (CEE) banking operations that are expected to benefit the most from the merger. The amalgamation of HVB and UniCredito will create the largest bank in this emerging region, where lending business is growing several times faster than in the eurozone.

The combined company will have almost 11 million customers in the CEE region, with more than 20% of the market in Poland, Croatia and Bulgaria, and will be twice the size of the next biggest rival, Austria's Erste Bank.

For the most part, the move looks set to provide a fillip to both UniCredito and European banking as a whole. However, it will not prove popular with everyone and UniCredito will have to cope with the anger of trade unions following the news that around 9,000 banking jobs are likely to go as a result of the deal. Managing this element of the integration will perhaps be the sternest test for Europe's newest bank.

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