Italy-based UniCredit SpA's accumulation of a 9% stake in German lender Commerzbank AG could pave the way for a combination of two of Europe's largest banks, analysts believe.
Germany's Finance Agency said Sept. 11 it sold a 4.49% interest in Commerzbank to UniCredit for €702 million. The Italian banking group also acquired additional shares in Commerzbank via market activity, bringing its total stake to 9%.
UniCredit said it will seek regulatory approval to acquire more shares and build a stake of more than 9.9% if necessary, which would make it the second-largest investor in Commerzbank after the government's remaining 12% stake, S&P Global Market Intelligence data shows.
"We believe the market is likely to see this as a first step for a potential combination," Citi Research analysts said in a note. The deal could help UniCredit expand its franchise in Germany, particularly in the retail and small-business segments, the analysts said.
A full takeover of Commerzbank would make financial and strategic sense for UniCredit, bolstering its presence in Germany and Poland, analysts at Keefe, Bruyette & Woods said in a research note carried by Dow Jones Newswires.
UniCredit said acquiring the stake is consistent with its strategy, adding that it will "engage with Commerzbank to explore value-creating opportunities for all stakeholders in both banks."
UniCredit's investment is a "testament to the progress made and the position of Commerzbank," the German lender said in a statement. "Commerzbank's management and supervisory board will continue to act in the best interest of all our shareholders and our key stakeholders such as employees and clients."
Shares of Commerzbank rose 18% on the news, while UniCredit shares were flat in midday trading.
Acquisition trail
Under CEO Andrea Orcel, UniCredit has amassed more than €10 billion of excess capital, fueling speculation of a large-scale takeover. Previous acquisitions include a 9% stake in Greek lender Alpha Bank and the purchase of Poland-based Vodeno and Aion Bank for €370 million.
"We confirm that traditional bank acquisitions shall be executed only if they fit strategically and if their post-synergies returns compare favorably with both of our share buybacks," Orcel said during an earnings call in May.
Commerzbank in better shape
Germany spent €18.20 billion to recapitalize Commerzbank at the height of the global financial crisis. The bank's total returns have plummeted since then, but €13.15 billion has been repaid to the government, Germany's Finance Agency said Sept. 3.
"We are pleased to say that the idea of [stabilization] was the right one. The bank's economic situation has steadily improved since 2021," Eva Grunwald, executive board member at the agency, said when the plan to sell the Commerzbank stake was announced.
The group posted a 2023 net income of €2.24 billion, versus a loss of €2.06 billion in 2020, according to Market Intelligence data. Additionally, S&P Capital IQ mean estimates project this to rise to €2.35 billion in 2024 and €2.47 billion the year after.
Net interest income (NII) growth has been a significant driver of the bank's financial performance in recent years, increasing to €8.37 billion in 2023 from €4.98 billion in 2020. Although forecasted to fall slightly to €8.16 billion in 2024, it remains significantly above 2020 levels.
Germany's exit is a positive for the bank in the long term and signals that the government is confident of the bank's stability and future prospects, according to Firdaus Ibrahim, vice president and senior equity analyst at CFRA Research. Reduced government ownership may allow Commerzbank more operational flexibility and independence, Ibrahim said.
Commerzbank's return on equity was 7.40% in 2023, compared with an ROE of negative 10.13% in 2020, and is expected to improve further in 2024 and 2025.
CEO Manfred Knof will, for personal reasons, step down from the role when his current term ends in December 2025, after successfully guiding Commerzbank back into Germany's blue-chip DAX index.