(Bloomberg) -- The German government’s decision to offload about a quarter of its holding in Commerzbank AG is driving another wedge into Chancellor Olaf Scholz’s fractious ruling coalition.
Finance Minister Christian Lindner of the business-friendly Free Democrats on Thursday defended his ministry’s sale last week of a 4.5% stake to Italy’s UniCredit SpA, arguing it was the right time to begin the process of exiting the German lender and it’s not the government’s role to create national champions.
Officials working for Social Democrat Scholz in the chancellery see the matter differently and have insisted on opening an internal investigation into how the sale played out, according to people familiar with the matter.
It’s looking at the sequence of events and why no one involved seemed to anticipate the possibility of a strategic investor buying the entire 4.5% tranche, added the people, who asked not to be identified discussing internal business.
“We are now conducting a thorough analysis of events and the sale of the stake to UniCredit and then will further analyze the situation,” Steffen Hebestreit, Scholz’s chief spokesman, said Friday at the regular government news conference in Berlin, confirming an earlier Bloomberg report.
The clash is the latest evidence of friction within Scholz’s three-party coalition, which is limping toward the next national election in just over a year with its poll ratings at record lows.
Voters have become increasingly frustrated with the government’s performance and the Commerzbank episode has fueled accusations from opposition lawmakers that Scholz and his ministers lack the competence to run Europe’s biggest economy.
Tensions have also been rising around the issue of irregular migration and Scholz’s SPD is in danger of losing power to the far-right Alternative for Germany in Sunday’s regional election in Brandenburg — the state that’s home to the chancellor’s Potsdam constituency.
Lindner, whose FDP party is strongly pro-market, on Thursday reiterated his stance that the state “cannot, must not, and does not want to be a stake holder in a private bank in the long term.”
“The federal government must not pursue an industrial policy but must sell its shares to the market without discrimination,” Lindner said at a finance ministry event in Berlin.
“And that is exactly the kind of process we have seen now,” he added. As a former finance minister, Scholz was also due to attend the event but pulled out.
In snapping up the Commerzbank stake — the first sale of shares since a bailout over a decade ago — UniCredit Chief Executive Officer Andrea Orcel increased his bank’s holding to 9%.
That made UniCredit the second-largest shareholder after the German government, which retains 12%, and Orcel subsequently said he’s considering a full takeover. Some officials in Berlin were apparently caught off guard, having expected institutional investors to each buy small amounts.
UniCredit’s move shouldn’t have come as a surprise to the relevant parties, Orcel said in a Bloomberg TV interview a day after the Italian lender, which already has a strong presence in Germany, unveiled its stake.
Germany’s finance agency hired JPMorgan Chase & Co to prepare the sale, and the investment bank subsequently invited several potential investors including UniCredit to give an indication of their interest in buying shares, a standard process known as wall-crossing, people familiar with the matter said. JPMorgan informed the finance agency about the involved parties, they said.
The finance agency later mandated JPMorgan and Goldman Sachs Group Inc to serve as so-called bookrunners on the placement, which means their role essentially was to buy the shares on offer and sell them on to other investors, the people said. While the general expectation was that only financial investors would participate in that placement, UniCredit ultimately joined too, submitting a bid that substantially exceeded all others.
Goldman Sachs, which has long been a defense adviser for Commerzbank, recused itself from the process when it learned about UniCredit’s involvement, the people said.
JPMorgan informed the finance agency that Unicredit’s offer was the best and the finance agency let the sale go ahead, the people said.
“As is usual in such transactions, potential investors were contacted by the investment bank JPMorgan, which was commissioned by the finance agency, as part of the sales process, including the Unicredit Group,” Finance Ministry spokeswoman Nadine Kalwey said at a government press conference.
Representatives for the finance agency, JPMorgan and Goldman declined to comment.
Labor union Verdi has since put pressure on the government to halt further share sales and stop UniCredit from buying Commerzbank as it’s concerned about job cuts.
The German government also was “well aware” that UniCredit had built up a separate 4.5% position in Commerzbank, Orcel said in the interview.
The stake sale, which raised about €700 million ($782 million), will also be scrutinized by the lower house of parliament’s finance committee at a closed-door meeting next Wednesday. Lawmakers have asked Lindner’s ministry for information about the way the placement was handled and its outcome.
Discussing Commerzbank with reporters Thursday, Economy Minister Robert Habeck, a member of the Greens who is also the vice chancellor, highlighted the importance of a robust banking system to Germany’s economic prosperity.
“One challenge is that the capital market in Europe and also in Germany is not deep enough,” Habeck said. “When it comes to large loan volumes — wind farms, converter stations or large investments in companies — the ceiling is quickly reached, which is why I can generally say that a strong German banking landscape is important.”
--With assistance from Sonia Sirletti, Kamil Kowalcze, Zoe Schneeweiss and Eyk Henning.
(Updates with Hebestreit comment in fifth paragraph and details about stake sale from fifteenth paragraph.)
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