Italy's UniCredit raises eyebrows over Commerzbank move

Why has UniCredit bought a stake in Commerzbank?

Germany's government, which bailed out Commerzbank after the 2008/09 financial crisis by taking a 16.5% stake, tipped off potential buyers last week that it wanted to sell part of its holdings in the country's second-biggest lender. 

On Wednesday, Berlin confirmed that UniCredit had outbid other hopefuls to land a nearly 4.5% stake in Commerzbank for about €700 million ($771.3 million). Germany's Federal Finance Agency said UniCredit had "significantly outbid" all other offers.

The Italian lender also quietly bought up another 4.5% of Commerzbank shares on the open market in recent weeks, bringing its total acquisitions to around €1.4 billion.

Although the German state remains Commerzbank's biggest shareholder, the sale of just over 53 million shares reduces the government's stake to 12%.

UniCredit is now also one of Commerzbank's biggest shareholders, and the share purchase paves the way for a potential takeover. UniCredit chief executive Andrea Orcel told Bloomberg on Thursday that he was considering that option.

Any takeover would create an entity that would surpass Deutsche Bank as Germany's biggest lender. Deutsche Bank explored a merger with Commerzbank in 2019, but it ended without agreement.

Bloomberg reported on Thursday that UniCredit is believed to have €10 billion in cash for potential acquisitions. However, financial market regulations prevent Berlin from selling any further stake in Commerzbank for the next three months.

What's been the reaction in Germany?

The swoop for Commerzbank surprised financial markets, Commerzbank's management and German politicians alike.

Unions have warned a merger would be harmful for commercial clients and for jobs. Verdi, the services sector union, called on the German government to "oppose" a merger and not to sell further shares to UniCredit.

Commerzbank is one of Germany's few major privately owned banks and a big lender to the country's so-called Mittelstand, or medium-sized companies, which are the backbone of the German economy.

Some lawmakers and business leaders think a tie-up between UniCredit and Commerzbank would be unwelcome competition for Deutsche Bank, which was weakened by the financial crisis and the eurozone debt crisis but avoided a German government bailout.

A source in the German government told Reuters news agency Friday that ministers were not against a tie-up in principle, but it was up to the two banks to decide.

Commerzbank said in a statement its board would "continue to act in the best interests of all our shareholders, employees and customers."

Reuters reported that the German lender had rushed to appoint Goldman Sachs to act as its defense adviser.

An anonymous source told Reuters that Commerzbank held an urgent board meeting on Wednesday to discuss how to remain independent and explore strategies to resist a potential bid from UniCredit.

What is UniCredit and why is its CEO Andrea Orcel so key?

UniCredit was formed in 1998 from the merger of several Italian banking groups, including UniCredito and Credito Italiano. It has since acquired several other Italian and European banks. It is headquartered in Milan.

UniCredit is the world's 34th largest lender by assets and is considered a systemically important bank — whose failure might trigger a financial crisis.

CEO Andrea Orcel is known as one of Europe's most experienced dealmakers. He is a controversial figure — often criticized for his abrasive management style.

Orcel orchestrated the merger that created UniCredit, then performed a similar maneuver in Spain that created BBVA and helped Banco Santander to buy the UK's Abbey National.

Just before the financial crisis, he was headhunted by the Royal Bank of Scotland (RBS) to help it buy Dutch lender ABN Amro. The UK government was later forced to bail out RBS due to the credit crunch.

In 2018, Orcel was tapped for the CEO role of Banco Santander, but the offer was rescinded as the Spanish lender couldn't meet his pay demands. He sued Santander, and in 2021, he was awarded €68 million in compensation.

UniCredit's share price has quadrupled since Orcel's arrival as CEO in April 2021, valuing the lender at €59 billion ($65 billion), far bigger than Commerzbank's €18 billion.

What would a takeover mean for banking in Europe?

Unicredit's stake purchase in Commerzbank has reignited speculation about consolidation in Europe's fragmented bank sector.

European regulators have long favored reducing the number of banking players due to the sector's low profitability.

They could include several Italian lenders, France's Societe Generale, Portugal's Banco Comercial Portugues, and the UK's Standard Chartered, Bloomberg reported Thursday, citing JP Morgan analyst Kian Abouhossein.

However, banking executives say cross-border mergers are almost impossible at present due to fragmented markets and tight regulation.

Orcel said Thursday he would now seek approval from the continent's banking chief regulator, the European Central Bank (ECB), for UniCredit to potentially increase its stake in Commerzbank beyond the 10% currently allowed.

The ECB was kept informed over the summer about UniCredit's possible move on Commerzbank, Bloomberg reported.