Why has UniCredit bought a stake in Commerzbank?

UniCredit surprised markets two weeks ago by revealing it had acquired a 9% stake in Commerzbank for about €700 million ($771.3 million) after outbidding other hopefuls for a part of the German government's stake in the lender. 

On Monday, Italy's second-biggest lender caught financial experts off guard again when it announced it had taken another 11.5% through financial instruments, bringing its total ownership to around 21%. In addition, UniCredit said it has requested European Central Bank (ECB) permission to raise its stake to 29.9% — just short of the 30% threshold that would require it to make a public offer for the entire bank.

In a statement, UniCredit also said it had "full flexibility and optionality to either retain its shareholding, sell its participation or increase the stake further."
Earlier this month, the German government, which bailed out Commerzbank after the 2008/09 financial crisis by taking a 16.5% stake, tipped off potential buyers that it wanted to sell part of its holdings in the country's second-biggest lender. 

The sale of just over 53 million shares to Unicredit reduced the German government's stake in the lender to 12%.

UniCredit is now also one of Commerzbank's biggest shareholders, and the stake buildup paves the way for a potential takeover. UniCredit chief executive Andrea Orcel told Bloomberg on Thursday (September 19) that he was considering the 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 also reported that UniCredit is believed to have €10 billion in cash for potential acquisitions. However, the German government has decided not to sell any further shares in the lender. German Finance Minister Christian Lindner said on Tuesday "the style of the UniCredit approach has unsettled many shareholders in Germany," prompting the government's decision.

What's been the reaction in Germany?

German Chancellor Olaf Scholz on Monday issued a sharp warning to UniCredit to refrain from "unfriendly" attacks."

"Hostile takeovers are not a good thing for banks, which is why the German government has taken a clear position here and made it very clear that we do not consider this to be an appropriate course of action," Scholz told reporters on the sidelines of a visit to the United Nations in New York. Commerzbank was a lender that "operates successfully" and plays a key role in helping the German economy and its small- and medium-sized companies access necessary funding, Scholz added.

A German Finance Ministry official told news agency AFP on Tuesday that Berlin had "communicated" to UniCredit that they would "not support a takeover" and, instead would "support Commerzbank's strategy of independence."

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

Commerzbank Works Council head Uwe Tschaege said in a statement that staff representatives were "astounded and angry" about the behavior of UniCredit CEO Andrea Orcel. 

"He is not interested in what the government or Commerzbank says, this is not a friendly act," Tschaege said."The mood here is even more negative than before."

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.

Commerzbank's management board is convening for a strategy meeting near Frankfurt on Main, Germany, where it is presenting its vision for the future to the bank's supervisory board. But UniCredit's move is expected to dominate the agenda of the gathering.

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 buy the UK's Abbey National.

Just before the 2008 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, 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 share 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.

In its statement on Monday, UniCredit cited a recent report on European competitiveness presented by former ECB President Mario Draghi, arguing that the continent needs the banking consolidation that the possible takeover bid represents.

"UniCredit believes that there is substantial value that can be unlocked within Commerzbank, either stand-alone or within UniCredit, for the benefit of Germany and the bank's wider stakeholders," it added.

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

This article, originally published on September 16, has been updated to reflect the latest developments regarding UniCredit's move to increase its stake in Commerzbank.

Edited by: Ashutosh Pandey