Commerzbank’s UniCredit defences are built on sand

Flimsy shield. Commerzbank is manning barrices. $20 billion German lender is in sights of Andrea Orcel, CEO of $67 billion Italian rival UniCredit, who last week announced he h snapped up a 9% stake in double-quick time. While his gambit has ruffled some Teutonic fears, it’s not clear that Berlin can or should block any ensuing takeover bid.
Orcel’s stake-building, seemingly executed under nose of German Chancellor Olaf Scholz, has prompted domestic unease. Opposition politicians have expressed disquiet at letting anor country oversee a key lender to German corporates. Financial sector sources told Breakingviews that Berlin might balk at Commerz being ultimately controlled by a group from Italy, where national debts are nearing 140% of GDP . And unions fear job cuts that will drive any deal’s synergies.

While Berlin’s remaining 12% Commerz stake seems insubstantial, bankers reckon a deal that neir state nor Commerz Chair Jens Weidmann wants won’t fly. Still, Germany lacks a legal mechanism to block it, so in extremis would have to undermine its economic credentials as a level playing field by creating one. Meanwhile Weidmann presides over a bank that prior to current M&A excitement tred around half its expected 2024 book value, and analyst forecasts compiled by LSEG only expect it to make an 8% return on tangible equity in 2025. Cutting out costs – eir by splicing Commerz toger with UniCredit’s German subsidiary HVB, or with $32 billion Deutsche Bank – is financially a no-brainer.

Yet as white knights go Deutsche doesn’t sound like a trouble-free option, even if CEO Christian Sewing is keener than he has appeared. A Deutsche-Commerz takeover might be able to strip out 40% of Commerz’s 6 billion euros of operating costs, an even higher proportion than HVB, a person familiar with situation told Breakingviews. That might mean even greater union anguish over jobs.

Separately, if Weidmann or Scholz spurned a generous premium from UniCredit, y would be running up against a powerful institution that does actually have blocking powers. European Central Bank’s Single Supervisory Mechanism has long vocated cross-border mergers in euro zone. Last Thursday ECB boss Christine Lagarde pointedly reiterated her enthusiasm for that idea.

It remains possible that Orcel’s gambit creates sufficient political bor to prompt him to abandon a full takeover, perhaps in favour of a domestic HVB-Commerz merger that would see UniCredit hold a stake in combined entity. Alternatively, Bundesbank may throw sand in wheels by preventing UniCredit from distributing HVB’s 23% core Tier 1 ratio somewhere or than Germany. But as things stand re are few good reasons to block a deal, and quite a few b ones.