Unwelcome in Germany, UniCredit CEO zeroes in on Italy

By Tom Sims, John O’Donnell and Valentina Za

MUNICH/FRANKFURT/MILAN (Reuters) -Simply days earlier than UniCredit CEO Andrea Orcel set his sight on a takeover goal in Italy, extra proof emerged of fierce resistance to his curiosity in German flagship lender Commerzbank (ETR:CBKG). 

A bunch of shoppers from Germany’s company elite pleaded with Commerzbank’s CEO to reject a deal, in keeping with folks concerned within the assembly on the financial institution’s Frankfurt headquarters, underscoring the depth of opposition.

They warned Germany’s second-largest financial institution would face the identical destiny as a Bavarian financial institution HVB, which UniCredit purchased in 2005 and subsequently overhauled and scaled again.

On Monday, Orcel switched his focus to his house market with a ten billion euro ($10.5 billion) supply for smaller Italian rival Banco BPM, saying this deal would take priority over any potential transfer for Commerzbank.

Orcel had caught the German institution off guard by discreetly constructing a considerable stake within the German lender.

Its announcement in September prompted backlash from politicians, business and unions.

They warned of potential job losses and detrimental results a takeover may need on lending to small and medium-sized firms, or Mittelstand, the spine of Europe’s largest financial system, athough some lobbies have been extra guarded.

Some in Germany, together with finance minister Joerg Kukies, see his bid as all however lifeless, and Orcel’s shift in focus was greeted with guarded aid in Commerzbank, in keeping with folks acquainted with the financial institution’s pondering.

Orcel could not but be able to throw within the towel. The consummate dealmaker is bracing for a battle in Germany that might take many months, in keeping with one particular person acquainted with his pondering. A smaller buy in Italy may permit UniCredit to maintain shifting whereas engaged on the larger catch.

Resistance, nevertheless, stays stiff.

Ulrich Grillo, one of many executives on the current assembly at Commerzbank, who leads the eponymous chemical maker – a Mittelstand firm – mentioned he informed the board he feared key financing choices shifting to Milan. 

One other attendee, the enterprise capitalist Christian Miele, a scion of the household famed for its family home equipment, mentioned: “Nobody within the room was in favour of it.” 

The assembly capped off weeks of pushback in opposition to UniCredit.

After UniCredit snapped up HVB, a financial institution with its roots in Munich relationship again to the 1860s, it adopted up by slashing the workforce by two thirds and shuttering a whole lot of branches, decreasing the financial institution to a shadow of its former self. The shrinking in HVB’s workforce accelerated below Orcel since he took over as UniCredit CEO in early 2021.

In a extremely uncommon transfer for a financial institution, Orcel additionally pushed via a change of HVB’s authorized kind, shedding the “AG” standing which protects the independence of the board in favour of a “GmbH” authorized kind which permits shareholders to information the board.

Interviews with dozens of nationwide and native politicians, CEOs, commerce union and authorities officers laid naked fears that Commerzbank could possibly be a grim repeat, eroding a lender essential for Mittelstand, hardening resistance to any deal.

TURBULENT TIME

UniCredit’s swoop on Commerzbank got here at a time of financial and political turmoil in Germany, with the financial system grinding to a halt and a political vacuum in Berlin after the collapse of the governing coalition. 

This stoked fears that Orcel may make the most of Germany’s weak point to clinch a deal, fuelling issues of a wider erosion of the nation’s significance. 

Boris Rhein, the premier of Commerzbank’s house state of Hesse, just lately informed a room of CEOs, together with Commerzbank’s, that the nation’s No. 2 financial institution should not be allowed to be swallowed up.

“We must always give wind to the sails of such a flagship and never permit it to run aground,” Rhein, who belongs to the Christian Democrats more likely to lead Germany’s subsequent coalition authorities, mentioned.  

From UniCredit’s perspective, HVB’s revamp has been a hit – leading to much less hierarchy and quicker choices on mortgage approvals. All of the whereas, HVB, within the phrases of Orcel, “crushed prices” – to 44 cents for each euro of earnings by 2023, down from 59 cents in 2005.     

A senior UniCredit government denied that choices in regards to the financing of German firms have been made in Italy or on the group degree, noting that the native decision-making course of had been empowered during the last three years.

Since taking the reins at UniCredit, Orcel has targeted on boosting returns, driving a close to five-fold enhance in its share worth.

In a sign {that a} Commerzbank takeover for now’s on the backburner, Orcel on Monday informed analysts that Germany’s upcoming early elections meant “there would have been no base or means to maneuver within the quick time period. And perhaps there will not be a capability to maneuver in any respect.”

“By the point we’d have closed the second bid, we’d have built-in the primary financial institution,” Orcel mentioned.

Italy’s third-largest financial institution Banco BPM has been on Orcel’s want record since he turned CEO. Shopping for Banco BPM would assist UniCredit scale back the hole with Intesa Sanpaolo (OTC:ISNPY), which in 2020 leapfrogged UniCredit to change into Italy’s largest financial institution.

“He is sending a message to the Germans,” mentioned Richard Portes, professor of economics at London Enterprise College. “He can await Commerzbank.”