Tom Sims, John O’Donnell and Valentina Za
MUNICH/FRANKFURT/MILAN (Reuters) – Just days before UniCredit Chief Executive Andrea Orcel set a takeover target in Italy, more evidence emerged of fierce opposition to his interest in leading German bank Commerzbank ( ETR: ).
A group of clients from Germany’s corporate elite begged Commerzbank’s chief executive to reject the deal, according to people involved in the meeting at the bank’s Frankfurt headquarters, underscoring the depth of opposition.
They warned that Germany’s second largest bank would face the same fate as the Bavarian bank HVB, which UniCredit bought in 2005 and then overhauled and downsized.
Orcel shifted its focus to its home market on Monday with a 10 billion euro ($10.5 billion) bid for smaller Italian rival Banco BPM, saying the deal would take precedence over any potential move for Commerzbank.
Orcel caught the German establishment off guard by discreetly acquiring a substantial stake in the German lender.
His announcement in September provoked a reaction from politicians, industry and trade unions.
They warned of possible job losses and the adverse effects a takeover could have on lending to SMEs, or the Mittelstand, the backbone of Europe’s biggest economy, although some lobbies were more cautious.
Some in Germany, including Finance Minister Joerg Kukies, consider his bid all but dead, and Orcel’s shift in focus has been met with cautious relief at Commerzbank, according to people familiar with the bank’s thinking.
Orcel may not be ready to throw in the towel just yet. According to one person familiar with his thinking, the consummate trader is preparing for a battle in Germany that could last months. A smaller purchase in Italy could allow UniCredit to continue operating while it works on a bigger catch.
However, resistance remains strong.
Ulrich Grillo, one of the executives at a recent meeting at Commerzbank, who runs the chemical maker of the same name – the company Mittelstand – said he had told management he feared key financing decisions would move to Milan.
Another attendee, venture capitalist Christian Miele, scion of a family known for its home appliances, said: “No one in the room was in favor of it.”
The meeting ended the weekly resistance against UniCredit.
After UniCredit took over HVB, a bank whose roots in Munich date back to the 1860s, it followed by cutting its workforce by two-thirds and closing hundreds of branches, leaving the bank a shadow of its former self. HVB’s workforce reduction has accelerated under Orcel since he took over as UniCredit’s chief executive in early 2021.
In a highly unusual move for a bank, Orcel also pushed through a change in HVB’s legal form, ditching the “AG” status that protects board independence in favor of the “GmbH” legal form that allows shareholders to lead the board.
Interviews with dozens of national and local politicians, CEOs, trade union and government officials exposed fears that Commerzbank could do a grim repeat, eroding the lender critical of the Mittelstand, strengthening resistance to any deal.
TURBULENT TIME
UniCredit’s attack on Commerzbank came at a time of economic and political turmoil in Germany, with the economy at a standstill and a political vacuum in Berlin following the collapse of the ruling coalition.
That fueled fears that Orcel could exploit Germany’s weakness to strike a deal, fueling concerns of a wider erosion of the country’s prominence.
Boris Rhein, the prime minister of Commerzbank’s home state of Hesse, recently told board chairmen, including Commerzbank, that another bank in the country should not be allowed to be swallowed up.
“We should put wind in the sails of such a plume and not let it run aground,” said Rhein, who belongs to the Christian Democrats who are likely to lead Germany’s next coalition government.
From UniCredit’s perspective, the restructuring of HVB was successful – it resulted in a smaller hierarchy and faster decisions on loan approval. All the while, HVB has, according to Orcel, “brought costs down” – to 44 cents for every euro of revenue by 2023, down from 59 cents in 2005.
The senior executive director of UniCredit denied that decisions on the financing of German companies were made in Italy or at the group level, stressing that the local decision-making process has been strengthened in the last three years.
Since taking the helm at UniCredit, Orcel has focused on increasing yield, driving a nearly five-fold increase in its share price.
In a sign that a takeover of Commerzbank is on the back burner for now, Orcel told analysts on Monday that the upcoming early elections in Germany mean that “there would be no base or ability to move in the short term. And there may not even be an ability to move at all.” “
“By the time we close the second offer, we would have integrated the first bank,” Orcel said.
Italy’s third-largest bank Banco BPM has been on Orcel’s wish list since he became CEO. Buying Banco BPM would help UniCredit close the gap with Intesa Sanpaolo (OTC:), which overtook UniCredit in 2020 to become Italy’s largest bank.
“He is sending a message to the Germans,” said Richard Portes, professor of economics at the London Business School. “It can wait for Commerzbank.”
