Berlin rejects the takeover of Commerzbank, as Unicredit increases its stake

Germany has escalated the battle for the future of Commerzbank, after Berlin said it was against a takeover just hours after Italy’s UniCredit announced it had increased its share in the Frankfurt-based bank. UniCredit shocked the European banking industry, including Germany, earlier this month by announcing that it had purchased a 9.1% stake in Commerzbank. Andrea Orcel’s Milan-based bank also indicated that he would consider a takeover.

UniCredit bought half its stake from Germany’s government. The German government had planned to sell Commerzbank stock to institutional investors, and was taken aback by the Italian lender. Germany’s Finance Agency (the country’s central provider of borrowing and debt management) announced on Friday that it would stop further sales of Commerzbank shares and that the Federal Ministry of Finance will resist any takeover attempts, stating that the lender’s strategic direction was “geared toward independence”.

Unicredit’s chief executive Andrea Orcel indicated that he would consider a takeover.

UniCredit, however, announced on Monday it would use derivatives to increase its stake in Commerzbank from about 17% to around 21%. This is a significant escalation in interest in the Frankfurt-based competitor, which puts the Italian bank on a collision path with the German Government.

Berlin rebuked UniCredit quickly, and an official of the finance ministry said that “we don’t support a takeover”, adding that the administration had communicated its stance to the Italian bank.

Olaf Scholz was quick to criticize this, warning: “Unfriendly attack, hostile takeovers, are not good for banks, and that’s why the German Government has clearly positioned themselves in this direction.”

Commerzbank’s shares fell by 6 percent, while UniCredit’s stock dropped by 3.5 percent. UniCredit said that the physical settlement of derivatives it is using to increase their stake would only take place after all the necessary approvals are obtained.

Since years, there have been rumors that UniCredit might buy Commerzbank, as it already has a large business in Germany. Orcel, who is 61 and a savvy dealmaker, was previously a top investment banker in London before taking charge of UniCredit. Jean-Pierre Mustier was Orcel’s successor as UniCredit chief executive. He is believed to have also looked at Commerzbank.

There has been a long-standing political opposition in Europe to large cross-border banking transactions, due to concerns that these deals would rob countries of their national champions. The lack of a European Union-wide bank deposit insurance scheme and this have been major obstacles for pan-European deals.

Commerzbank’s current 12 percent stake is the result of the German government bailing out the bank during the financial crisis in 2007-2009. In the past, Deutsche Bank, Germany’s largest lender, was tipped to be a possible suitor for Commerzbank. UniCredit’s decision to begin stake-building at Commerzbank fuelled speculation that Deutsche Bank might now take action.

The Italian lender stated on Monday that “substantial value can be unlocked in Commerzbank either alone or within UniCredit”. Orcel had previously indicated that he would not pursue an acquisition if Berlin opposed a deal.

Even before the Italians takeover of Commerzbank is announced, there are already protests in Germany. This includes from both the powerful Verdi union and Commerzbank’s works council.