Commerzbank lacks a good defence for UniCredit’s ‘frenemy’ hug

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One way to make friends involves smiling warmly. Another is to cut off their other avenues for connection. That seems the logic underlying UniCredit’s pursuit of Germany’s Commerzbank.

The Italian lender, led by M&A banker turned bank boss Andrea Orcel, has said it would not launch a hostile offer for Commerzbank. But by increasing its holding to about 21 per cent (9 per cent held directly, and the remainder through derivatives) it has likely seen off any competing bidder — and made it much more difficult for the German bank to fend off its suit.

The roster of possible white knights always looked thin. Local competitor Deutsche Bank has its own issues to deal with. And while a domestic solution might be politically preferable, it is not clear that German trade unions — among the shrillest opponents to UniCredit — would agree, given the steep job losses it would likely entail. Meanwhile, other large European groups are unlikely to relish the prospect of a complex tussle with UniCredit as a near-blocking minority shareholder. 

Commerzbank’s defence — besides hiding behind sceptical politicians — hinges on a convincing standalone story. It might, for instance, present itself as a consolidator of smaller German lenders, such as OLB, owned by Apollo, or Hamburg Commercial Bank, owned by Cerberus. It is not clear what truck its shareholders would have with this given the group’s long history of underperformance. It failed to make its cost of equity for at least the decade to 2023.

Moreover, mounting a vigorous defence would require Commerzbank to field a top-notch management team. At the moment it is virtually headless, with CEO Manfred Knof having already announced he will not seek re-election when his mandate expires next year. Commerzbank may well be running out of time to run a serious selection process. And — with UniCredit parked on the lawn outside — it is not best positioned to attract the cream of the banking crop.

Opponents of a deal will be banking on regulators or politicians stepping in. But while the European Central Bank has yet to approve UniCredit’s application to acquire up to 29.9 per cent of Commerzbank, it is not clear on what grounds it might refuse. German politicians clearly dislike the idea of a takeover. But blocking a richly priced offer purely on ideological grounds could be tricky.

UniCredit, too, does not need to buy Commerzbank outright to make money. It can gain as a significant shareholder, while exploring other options to combine parts of the businesses. It latest move leaves its bid for a “friendly” alliance of some sort looking strong — not least because it has aggressively dispatched with most alternatives.

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