Unicredit buys Commerzbank AG. The Italian bank has announced that it has acquired a stake in the German giant, and that the share could also increase. The aim of this operation is to increase cooperation between the two banks to explore business opportunities, which, however, will probably fuel speculation about acquisitions. Unicredit is already represented in Germany through its subsidiary HypoVereinsbank (HVB). It could also reopen the European banking risk. Let’s see the details.
Unicredit buys 9% of Commerzbank
Unicredit enters Commerzbank with the subscription of the 9% of the share capital for just over 700 million euros: 4.49% was purchased as part of an accelerated book building offering conducted on behalf of the German federal government, in line with Germany’s intention to reduce its stake in Commerzbank, while the remainder was purchased through market transactions.
The share price increased by double digits before the deal: pre-market the value jumped to +11.4%. The deal has an impact on UniCredit’s CET1 ratio of approximately 15bps and will not affect the existing distribution policy.
The highly concentrated demand for Unicredit led the German banking giant to outperform all other offers in the bookbuilding process. The allocation price was 13.20 euros per share, which is almost 5% higher than the closing price of Xetra (Xetra is the electronic trading venue operated by the Frankfurt Stock Exchange). Through the sale, the federal government gained 702 million euros.
The number of shares sold it was of 53.1 million. The investment value is hovering around the 2.5 billion eurosat the closing price yesterday, September 10. The value of the sales package was approximately 670 million euros, with a offering price per share equal to 12.48 euros.
After the sale, the German state’s shareholding thus drops from 16.5% to around 12%, while the federal government remains the largest individual shareholder. This makes Unicredit the third largest shareholder of Commerzbank. Another large shareholder is the US asset manager Blackrock, which holds around 7% of its shares through various funds.
The operation according to Unicredit
“The acquisition of the stake in Commerzbank AG is consistent with UniCredit’s strategy and the parameters within which it makes any investment. UniCredit will explore together with Commerzbank AG possible opportunities for the creation of value for the stakeholders of both banks” reads the official note from UniCredit.
Any decision regarding participation will also depend on the consistency of the investment with Unicredit’s financial parameters, which the bank itself defines as “stringent”. To maintain flexibility, the bank has already announced that it will submit an application to the authorities, “if and when necessary”, for increase the participation threshold to 9.9%.
Meanwhile, the institute led by Andrea Orcel intends to continue with Unicredit Unlockedunder the banner of “sustainable profitable growth and distributions for all shareholders”. Unicredit Unlocked is the new strategic plan implemented by the bank after a period of downsizing and restructuring, which also in Italy led to significant cuts, including job cuts.
“This is how we will create the bank for Europe’s future, a bank that generates value for all stakeholders and is able to unlock the potential of people, businesses and communities across Europe, providing them with the levers for progress. Indeed, this is where UniCredit continues to believe it can extract the most value for its shareholders,” the press release continues.
The state bailout of Commerzbank in 2008
But let’s get back to Commerzbank. The German bank has had a very troubled past: 16 years ago the state bailout. The entry of the German federal government into the capital of Commerzbank, through the financial vehicle for market stability, dates back to financial crisis of 2008, when the giant found itself in dire straits following the bankruptcy of Lehman Brothers.
That’s how he got the public supportwith the aim of ensuring the stability of the financial markets, since the German bank was too big to fail (too big to fail). Commerzbank received approximately 18.2 billion in aid, between 2008 and 2009, from the Financial Market Stabilization Fund. Of these, 13.15 billion euros have been repaid to date.
“The federal government’s investment in Commerzbank in 2008-2009 was important to safeguard the stability of the financial market in the midst of the financial crisis. The bank is now a stable and profitable institution again. Accordingly, the federal government intends to gradually sell its shares in the institution, they explained in Berlin.
Record profits thanks to job and branch cuts
Now, Commerzbank CEO Manfred Knof to step down at the end of 2025. There could therefore not have been a better time to begin the gradual sale (fire sale…?) of the federal government’s stake in Commerzbank.
On the other hand, the German economy is at its limits: with the auto sector close to collapse – Volkswagen is not the only one involved – and Berlin’s rediscovery of public debt, the situation could explode at any moment.
Since 2021, Knof has led a austerity program extremely severe, which has foreseen the thousands of jobs cut and the Reduction of the branch network across Germany. This strategy has led to record profits of around 2.2 billion euros in 2022, and further profit growth is expected in 2024. German Supervisory Board Chairman Jens Weidmann commented that the bank has been “restructured in record time” and now has a business model that is clearly focused on sustainability.
Despite a setback since May, Commerzbank’s share price has multiplied since spring 2020. The market value now stands at 14.9 billion euros. Compared to the Lufthansa bailout, however, in which the state made over 700 million euros from share sales during the pandemic, the sale of Commerzbank is likely to be a loss-making operation for taxpayers.
