UniCredit faces more political than regulatory hurdles in Commerzbank pursuit

Italy's UniCredit SpA could face more political roadblocks than regulatory issues in Germany should it attempt to take control of Commerzbank AG.

After buying the entire 4.49% stake in Commerzbank put up for sale this month by the German government, the Milan-based banking group amassed a holding of as much as 21% through market trading, subject to regulatory approvals.

The move sparked speculation that UniCredit, which built a sizeable war chest for acquisitions in recent years, may aim to acquire Commerzbank or merge it with its own German unit. "UniCredit believes that there is substantial value that can be unlocked within Commerzbank," the group said Sept. 23. "Such potential requires action for it to be crystallized."

The bank has already faced pushback from German politicians and unions who fear a deal would result in job cuts and branch closures, and leave one of Germany's key corporations under the control of a foreign rival.

"It's a politically sensitive thing," said Patrick Scholl, a lawyer at Mayer Brown. "An Italian bank buying a German bank can be mentally difficult."

'Politically fraught'

UniCredit plans to seek approval from German regulator BaFin to increase its holdings to as much as 30%, a request which will be sent to the European Central Bank, news outlets including Il Messaggero and Reuters reported. Acquiring a 30% stake in a German bank requires an investor to make a mandatory buyout offer.

The situation is "politically fraught," according to Cas Bonsema, senior financials analyst at Rabobank. "Political roadblocks appear to be a greater hurdle […] Since we are talking about giving up control of Germany's second-largest bank to outside national borders, that's clearly politically charged," he said.

UniCredit has long been seen as a potential merger partner for Commerzbank. It already has a business in Germany, UniCredit Bank GmbH or HypoVereinsbank, and combining with Commerzbank could unlock cost savings — including through branch closures and job losses — that would appeal to investors.

Commerzbank has 431 branches across Germany while HypoVereinsbank (HvB) has 292, according to S&P Global Market Intelligence data. About 40% of HvB branches are within 500 meters of a Commerzbank site, the data shows.

The potential for job losses is a point of contention should a takeover happen not least because growth in the German economy — Europe's largest — lags neighboring countries. Banking unions Verdi and DVB opposed a UniCredit takeover and urged the government to thwart any deal. Commerzbank is the leading German bank for Mittelstand, or small and medium-sized enterprises, which form the backbone of the country's economy.

"Unions are important and powerful in Germany and will pile on political pressure […] getting the German government on board may mean getting the unions on board," Rabobank's Bonsema said.

Merging Commerzbank and HvB would create a business with about €842.49 billion in assets, Market Intelligence data shows. Based on figures from the end of June, a combined entity would have more than 51,000 full-time employees.

Regulatory response

Cross-border mergers are rare in the European banking industry, but the need to improve the competitiveness of the continent's businesses on the global stage could give impetus to a UniCredit-Commerzbank tie-up.

Under German law, investors acquiring 10% or more of a bank must inform regulators, who will do checks including on ownership structure, liquidity and management, according to Marcel Hörauf, a lawyer at Mayer Brown focused on banking and financial services regulations.

"You would need to demonstrate what you really intend to do with this — the [newly] acquired assets or part of the bank," Hörauf said in an interview. The process of acquiring a bank usually takes at least half a year from beginning to end to secure regulatory approval, he said.

UniCredit and Commerzbank are both supervised by the ECB and hence are subject to similar resolution laws, making the process of seeking regulatory approval for a deal "a little bit easier," according to Mayer Brown's Scholl.

The ECB considers factors including the acquirer's reputation and financial soundness, the impact on prudential requirements and risks linked to money laundering and terrorist financing, said Bonsema.

UniCredit is well-capitalized and was formerly considered a globally systemically important bank. Acquiring up to 9%, and even potentially 21%, of Commerzbank would have a "an overall limited financial impact" on UniCredit, according to Fitch Ratings analyst Rafael Quina. The rating agency estimated an impact of only about 15 basis points on its common equity Tier 1 capital ratio, which is negligible given the size of the capital level the group holds.

A combined UniCredit-Commerzbank would become the ninth-largest European bank, one place above Deutsche Bank AG, Market Intelligence data shows.

Battle ahead

The German government still owns a 12% stake in Commerzbank. The Federal Finance Agency on Sept. 23 said it would stop selling more shares in the bank until further notice. Yet, just hours later, UniCredit revealed it had nearly doubled its position in Commerzbank.

UniCredit CEO Andrea Orcel said he was open to all options for the bank's Commerzbank stake. He ruled out an unsolicited tender offer for Commerzbank, telling Il Messaggero that such a move would be "aggressive."

Commerzbank, meanwhile, is also contending with the search for a new CEO after Manfred Knof said he would step down in December 2025. Knof said he hoped the bank could stay independent.

UniCredit and the German finance ministry did not immediately respond to S&P Global Market Intelligence's requests for comment on this story. Commerzbank declined to comment.