(Bloomberg) -- UniCredit SpA’s shock move on Commerzbank AG caught Germany’s government off guard and puts Chancellor Olaf Scholz in a bind.
Berlin had no advance warning that UniCredit would swoop when it offered a tranche of Commerzbank shares for sale on Tuesday, according to people familiar with the process. The purchase leaves officials in an unexpected position in which UniCredit, with 9%, owns almost as much of Commerzbank as Germany does, and it could become the biggest shareholder when more stock is offered.
German officials had expected that a slew of different investors would buy the Commerzbank shares, keeping each one’s stake at modest levels, one of the people said. That would have helped to ensure the bank remained independent so that it would focus on lending to mid-sized firms in its home market.
But the warning signs were there.
UniCredit had previously signaled its interest in increasing its stake in Commerzbank and Berlin had rebuffed the idea. Officials had also been told that announcing their plan to offer shares would add to the chances that a foreign lender would end up buying a large chunk, another person said.
Italian Prime Minister Giorgia Meloni was given advanced notice of UniCredit CEO Andrea Orcel’s plan in recent days, according to a person close to her.
Finance Ministry spokeswoman Nadine Kalwey said Wednesday that the government had received no offer from UniCredit before Tuesday’s sale and that it would take stock of the situation before deciding on its next move.
The government made its plans public in order to signal that the process would be fair and to demonstrate its commitment to finally divesting a stake that it has held since 2008, two people said.
But it also managed to tip off Orcel to an opportunity. In the days ahead of the sale, UniCredit built up its stake through derivatives contracts, several people said.
UniCredit’s investment raises the prospect of a full takeover of Commerzbank and the Italian lender has said it will seek authorization to increase its stake.
It also complicates Berlin’s efforts to deliver on long-standing pledges to divest its full Commerzbank holding.
Germany still owns 12% of the lender and the government had been aiming to get rid of that before elections a year from now. But the three governing partners are deeply divided on a range of issues and have been languishing in the polls for months.
Faced with the embarrassment of losing money on the €18 billion ($20 billion) it paid for the Commerzbank holding during the financial crisis, Berlin had been holding on in the hope of achieving a better price.
UniCredit’s bid of €13.20 per share was “significantly higher” than all other offers, the government said in a statement. But it was still some 16% below the level where the stock was trading before the summer.
Now the dilemmas posed by UniCredit’s coup are likely to exacerbate the tensions within the coalition.
Finance Minister Christian Lindner, from the pro-business FDP, has been one of the strongest advocates for getting rid of the government’s stake. But Chancellor Scholz, a Social Democrat, may feel more pressure from unions to call off the sale in order to protect jobs and ensure that Germany retains its second-biggest lender.
German labor union Verdi on Wednesday called on the government to stop the sale of any more shares in Commerzbank immediately. Under stock market rules, Germany can’t sell any more stock anyway for at least three months.
For Meloni, by contrast, the sight of an Italian lender increasing its influence in Germany is a reminder of another deal almost two decades ago in a deal in which UniCredit bought another German lender, Hypovereinsbank, with Orcel acting as an adviser. That offers a boost at a moment when she has been wrestling with the perennial problems in Italy’s public finances.
The Italian government was briefed on the lender’s plan in recent days, the person close to Meloni said, although Italian officials understand that executives at UniCredit have been discussing the move for several weeks.
--With assistance from Michael Nienaber, Chiara Albanese, Sonia Sirletti and Steven Arons.
(Updates with details throughout)
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