(Bloomberg) -- Andrea Orcel’s audacious move on Commerzbank AG caught many in Germany unawares. On Friday, Berlin hit back.
The government’s announcement it won’t sell any more shares in the lender effectively shuts down — for now — any ambitions UniCredit SpA may harbor for a full takeover of Germany’s second-largest listed lender. For Orcel, it is a setback that raises questions about whether he can navigate the political challenges that threaten his most ambitious deal yet.
Resentment within the German government has been building against the way the UniCredit chief executive officer took a 9% stake in a lender seen as a crucial source of funding for the country’s economy, people familiar with the matter said. Many were irked by a perceived lack of transparency in the way Orcel bought a 4.5% stake from the government this month, having quietly acquired the rest of the holding in the market, as speculation of a possible sale by Berlin mounted.
That helped galvanize Berlin’s usually fractious ruling coalition. Germany’s finance agency said Friday the government will maintain its shareholding “until further notice” and made clear its preference that the lender remain independent, given its importance in financing small and medium-sized businesses.
“I don’t think this is the end but just a pause that now moves the ball in UniCredit’s hands, which has to give guarantees to the German government to get its blessing,” said Francesco Castelli, a London-based portfolio manager at Banor Capital Limited. “Germany is likely to require strict criteria in the governance structure to ring-fence its German operations.”
Germany’s finance ministry referred to the finance agency’s statement on Friday. A spokesperson for UniCredit declined to comment.
Seasoned Dealmaker
For Orcel, a seasoned dealmaker who has built a career on high-stakes maneuvers, overcoming Berlin’s opposition will be his hardest challenge yet.
Working at Merrill Lynch in 2005, Orcel advised UniCredit when it bought German lender HVB that year. Two years later, he helped Royal Bank of Scotland take over ABN Amro, an ill-fated purchase that helped snuff out all but emergency dealmaking in the financial crisis that followed.
Since taking over UniCredit, the former UBS investment banker has turned the Italian lender from one of Europe’s weakest into one of its most efficient and profitable. He’s cut thousands of jobs in a country where dismissals can be hard to pull off, has reshaped the commercial business and investor payouts are the highest among European banks.
Orcel has long viewed Commerzbank as a possible target under the right conditions. He’s spent three years scouting for a transformative deal for UniCredit, which he once advised on deals and now runs. The Italian banker’s gambit has been backed by investors of both banks with Commerzbank shares up 24% last week, since the announcement and UniCredit stock up 5%. Commerzbank fell as much as 6.2% at Monday’s opening on the German government’s stance.
While analysts say an Orcel-orchestrated tie-up with Commerzbank makes sense on paper, Berlin’s hardline stance underlines the political challenges to such a tactic. National pride and regulatory obstacles have long prevented cross-border banking deals in Europe’s highly fragmented market, especially when jobs are at stake.
Higher Returns
Germany’s decision to halt further Commerzbank share sales “underscores the contentious nature of cross-border bank M&A in Europe, influenced by political and public sentiment,” said Marco Nicolai, an analyst at Jefferies. Political resistance could be a stumbling block to “future cross-border integrations across Europe.”
Such opposition comes shortly after former European Central Bank President Mario Draghi delivered his long-awaited report on European Union competitiveness. The report effectively called for more integration and the need to pool resources to boost Europe’s future growth.
Berlin’s response underscores how protectionism and nationalism might counter such ambitions.
But what Germany “can’t do is cause Commerzbank to produce higher return on equity for its shareholders. As exhibited at UniCredit, that is Orcel’s principal objective,” said Cole Smead, CEO & portfolio manager of investment firm Smead Capital Management, which owns UniCredit shares. “Money goes where it is treated best. Today, for big banks, that is in Milan.”
And in Italian government circles, many welcome Orcel’s move, seeing the approach as a testament to Italy’s strengthening banking sector. Rome was aware of his thinking, according to people familiar with the matter, who asked not to identified discussing government matters.
In recent days, Orcel has tried to ease the tension with Germany. He’s said at least some in Berlin were aware of his bank’s intentions and has emphasized that he’s not interested in pursuing a hostile takeover even as he seeks regulatory permission to build a stake of as much as 30%.
Orcel also said that the purchase of shares shouldn’t have come as a surprise given his interest in Commerzbank has been well known and his bank’s existing footprint in the country. UniCredit was invited to take part in the government share sale, potentially giving the impression Berlin didn’t mind a purchase by the Italian bank.
Still, rather than soothing Berlin, Orcel’s comments have riled the government even further, the people said. The finance ministry subsequently denied it had been aware of the other 4.5% owned by UniCredit.
It’s the kind of dispute most executives would do anything to avoid. But Orcel is used to controversy.
In 2021, he walked away from talks to buy rival lender Monte Paschi despite urging from the administration of then-Prime Minister Draghi to do just that, souring UniCredit’s relations with the government. He successfully sued Banco Santander for reneging on an offer to hire him as CEO in 2019.
For now, there’s little prospect of Berlin’s opposition softening.
Still, Orcel’s made it clear he is in no rush, saying that UniCredit remains open-minded with regard to what happens next to its stake.
In a Bloomberg TV interview the day after UniCredit’s stake was disclosed, the CEO said he is open to engaging constructively in creating “something more than just the value offered by Commerzbank standalone,” adding that he is “very patient.”
“For Orcel, time is his ally,” said Smead Capital Management’s Smead.
Andrea Orcel’s audacious move on Commerzbank AG caught many in Germany unawares. On Friday, Berlin hit back.
The government’s announcement it won’t sell any more shares in the lender effectively shuts down — for now — any ambitions UniCredit SpA may harbor for a full takeover of Germany’s second-largest listed lender. For Orcel, it is a setback that raises questions about whether he can navigate the political challenges that threaten his most ambitious deal yet.
Resentment within the German government has been building against the way the UniCredit chief executive officer took a 9% stake in a lender seen as a crucial source of funding for the country’s economy, people familiar with the matter said. Many were irked by a perceived lack of transparency in the way Orcel bought a 4.5% stake from the government this month, having quietly acquired the rest of the holding in the market, as speculation of a possible sale by Berlin mounted.
That helped galvanize Berlin’s usually fractious ruling coalition. Germany’s finance agency said Friday the government will maintain its shareholding “until further notice” and made clear its preference that the lender remain independent, given its importance in financing small and medium-sized businesses.
“I don’t think this is the end but just a pause that now moves the ball in UniCredit’s hands, which has to give guarantees to the German government to get its blessing,” said Francesco Castelli, a London-based portfolio manager at Banor Capital Limited. “Germany is likely to require strict criteria in the governance structure to ring-fence its German operations.”
Germany’s finance ministry referred to the finance agency’s statement on Friday. A spokesperson for UniCredit declined to comment.
Seasoned Dealmaker
For Orcel, a seasoned dealmaker who has built a career on high-stakes maneuvers, overcoming Berlin’s opposition will be his hardest challenge yet.
Working at Merrill Lynch in 2005, Orcel advised UniCredit when it bought German lender HVB that year. Two years later, he helped Royal Bank of Scotland take over ABN Amro, an ill-fated purchase that helped snuff out all but emergency dealmaking in the financial crisis that followed.
Since taking over UniCredit, the former UBS investment banker has turned the Italian lender from one of Europe’s weakest into one of its most efficient and profitable. He’s cut thousands of jobs in a country where dismissals can be hard to pull off, has reshaped the commercial business and investor payouts are the highest among European banks.
Orcel has long viewed Commerzbank as a possible target under the right conditions. He’s spent three years scouting for a transformative deal for UniCredit, which he once advised on deals and now runs. The Italian banker’s gambit has been backed by investors of both banks with Commerzbank shares up 24% last week, since the announcement and UniCredit stock up 5%. Commerzbank fell as much as 6.2% at Monday opening on the German government’s stance.
While analysts say an Orcel-orchestrated tie-up with Commerzbank makes sense on paper, Berlin’s hardline stance underlines the political challenges to such a tactic. National pride and regulatory obstacles have long prevented cross-border banking deals in Europe’s highly fragmented market, especially when jobs are at stake.
Germany’s decision to halt further Commerzbank share sales “underscores the contentious nature of cross-border bank M&A in Europe, influenced by political and public sentiment,” said Marco Nicolai, an analyst at Jefferies. Political resistance could be a stumbling block to “future cross-border integrations across Europe.”
Such opposition comes shortly after former European Central Bank President Mario Draghi delivered his long-awaited report on European Union competitiveness. The report effectively called for more integration and the need to pool resources to boost Europe’s future growth.
Berlin’s response underscores how protectionism and nationalism might counter such ambitions.
And in Italian government circles, many welcome Orcel’s move, seeing the approach as a testament to Italy’s strengthening banking sector. Rome was aware of his thinking, according to people familiar with the matter, who asked not to identified discussing government matters.
In recent days, Orcel has tried to ease the tension with Germany. He’s said at least some in Berlin were aware of his bank’s intentions and has emphasized that he’s not interested in pursuing a hostile takeover even as he seeks regulatory permission to build a stake of as much as 30%.
Orcel also said that the purchase of shares shouldn’t have come as a surprise given his interest in Commerzbank has been well known and his bank’s existing footprint in the country. UniCredit was invited to take part in the government share sale, potentially giving the impression Berlin didn’t mind a purchase by the Italian bank.
Still, rather than soothing Berlin, Orcel’s comments have riled the government even further, the people said. The finance ministry subsequently denied it had been aware of the other 4.5% owned by UniCredit.
It’s the kind of dispute most executives would do anything to avoid. But Orcel is used to controversy.
In 2021, he walked away from talks to buy rival lender Monte Paschi despite urging from the administration of then-Prime Minister Draghi to do just that, souring UniCredit’s relations with the government. He successfully sued Banco Santander for reneging on an offer to hire him as CEO in 2019.
For now, there’s little prospect of Berlin’s opposition softening.
Still, Orcel’s made it clear he is in no rush, saying that UniCredit remains open-minded with regard to what happens next to its stake.
In a Bloomberg TV interview the day after UniCredit’s stake was disclosed, the CEO said he is open to engaging constructively in creating “something more than just the value offered by Commerzbank standalone,” adding that he is “very patient.”
--With assistance from Chiara Albanese.
(Adds shares price in 10th paragraph.)
©2024 Bloomberg L.P.
