UniCredit Seeks Tie-Up with Commerzbank Amidst Political Hurdles

Talks for a potential merger between Commerzbank and UniCredit are set to commence. UniCredit has acquired a 9% stake, but significant political challenges loom ahead of German elections. Commerzbank's new CEO, Bettina Orlopp, expressed cautious openness to the deal, emphasizing the evaluation of risks and synergies.

Commerzbank will commence initial discussions with UniCredit on Friday as the Italian bank pushes for a potential merger, the German bank's incoming CEO, Bettina Orlopp, announced on Thursday. UniCredit disclosed earlier this month that it had acquired a 9% stake in Commerzbank and intends to purchase additional shares while advocating for merger talks.

Described as the most ambitious bid for a pan-European bank merger yet, UniCredit's move encounters significant political challenges in Germany as national elections approach. Orlopp's statements on the potential merger mark her first public remarks since being named the German bank's next CEO at a pivotal moment in its 154-year history.

Minutes before Orlopp's remarks, Commerzbank revealed that both its supervisory and management boards had unanimously agreed to back the bank's current strategy of maintaining independence, while also raising profit and payout targets to secure investor support. Speaking at a financial conference in London, Orlopp highlighted the importance of evaluating synergies and risks before proceeding with any deal.

"Sometimes it makes sense, sometimes it doesn't, and that is something we need to find out jointly," she said, stressing that the bank would not undertake any "crazy" sell-downs, acquisitions, or "stupid things."

Orlopp's comments were a direct response to UniCredit CEO Andrea Orcel, who had advocated for the merger at the same conference. Commerzbank shares rose by 6% following news of the discussions, marking their highest level since 2011, while UniCredit shares climbed 4.5%.

Despite opposition from Commerzbank's management, employees, and German Chancellor Olaf Scholz, at least one major investor and several business leaders support the talks. Commerzbank, which serves over 25,000 business customers and handles nearly a third of Germany's foreign trade payments, is a crucial component of the German economy.

The bank's commitment to its current strategy was "unanimously confirmed," according to a statement issued earlier on Thursday. This consensus was reached after a supervisory board meeting in Frankfurt. Additionally, the bank increased its key profitability metric and pledged higher dividends and buybacks, forecasting a 12.3% return on tangible equity by 2027, surpassing prior estimates.

Commerzbank also set a profit target for 2027 exceeding 3 billion euros, aligning with analyst predictions.

(With inputs from agencies.)