Germany talks tough but has limited room to halt UniCredit's advance on Commerzbank

UniCredit Chief Executive Andrea Orcel has succeeded in uniting Germany’s political establishment in opposition to his stakebuilding in Commerzbank, the country’s second largest lender.

The bad news for Germany’s angry politicians is that they have few options to halt the ambitious Orcel, who appears to have his sights fixed on a transformative deal for the European banking sector.

“Legally, there is nothing we can do. But the government’s assessment naturally carries weight,” a German government source told Reuters on Tuesday.

Chancellor Olaf Scholz, who leads the Social Democrats, slammed Orcel’s latest move as “an unfriendly attack” after UniCredit announced on Monday it had used derivatives to raise its potential stake in Commerzbank to 21 per cent.

Friedrich Merz, the Christian Democrat opposition leader whom many see as Germany’s next chancellor, described a potential takeover as a “disaster for Germany’s banking market”, pointing to the precedent of HVB, the smaller Bavarian bank bought by UniCredit in 2005 and since subject to hefty job cuts.

With an election due in a year, German politicians are wary of potential job losses among Commerzbank’s 40,000 staff and the loss of control over a bank that is a key lender to the “Mittelstand”, the country’s small and medium-sized businesses.

Defence tactics

Resistance to such a takeover could normally take two forms - an attempt to rally the shareholder base against UniCredit, or the use of legal steps to block or delay any deal.

German government sources noted that banks are regulated by the European Central Bank (ECB), while laws to protect critical infrastructure do not readily apply to defending Commerzbank.

The ECB has long been clamouring for more cross-border mergers as a way of bolstering the euro zone’s banking sector against global rivals. Portuguese central banker Mario Centeno said on Tuesday it was now time to see “results” on that front.

One investor urged Germany to look beyond its narrow national interest.

“This is the fundamental question for the German government: Which God are they going to serve? Are they going to choose socialist control or the free market?” said Cole Smead, CEO of Smead Capital Management, which owns UniCredit shares.

“The longer it takes, the more pressure (there is) on the German government. Patience is the name of the game. The German government will effectively have a smaller stake than Orcel,” once the regulatory hurdles are cleared, he added.

“UniCredit is a big Italian bank and it is doing well to act within the internal market,” said Tajani, who leads the pro-business Forza Italia party.