A Year On, Italy's Unicredit Leaves Mark On Germany's Commerzbank

A year into UniCredit's campaign to persuade Commerzbank to open merger talks, CEO Andrea Orcel's hopes of overcoming German opposition seem as distant as ever.

But the Italian bank's push for an ambitious tie-up has led to a significant overhaul at Germany's second-largest lender.

As UniCredit built up its stake to become Commerzbank's largest shareholder, the German bank rushed to shake up leadership, restructure and sharpen its strategic goals as it sought to remain independent. Shares have surged.

"Commerzbank is playing in a different league today than it was a few years ago," said Andreas Thomae, a corporate governance expert at Deka, a large investor in the bank.

On September 11 last year, UniCredit unexpectedly disclosed it was buying Commerzbank shares. Orcel quickly made clear he wanted to talk about a merger, triggering widespread resistance from Germany.

The battle pitted Italy's second-biggest bank against the German establishment. It became a test case of Germany's ability to fend off foreign suitors and of whether cross-border banking deals in Europe are possible.

"Given that there are no conversations, nobody knows exactly what the plan is. That does not mean that it doesn't exist. Because we have one," Orcel told bankers at a conference in Frankfurt last week.

Whatever the eventual outcome, one thing is clear: investors are cheering the change at Commerzbank.

Ian Lapey, portfolio manager of the Gabelli Global Financial Services Fund at Gabelli Funds, said Commerzbank's "self-improvement plan" had resulted in a better financial performance and higher share price.

"Orcel's involvement has encouraged Commerzbank to accept more ambitious return targets, that's a positive thing," said Lapey, who ranks Commerzbank as his top stock pick for 2025.

Commerzbank's shares have more than doubled since UniCredit's initial overture, outpacing the Italian bank's 83% gain, although in recent weeks the stock has lost some of its shine as analysts downgraded it, saying the turnaround is largely reflected in the current price. Just weeks after UniCredit began acquiring its stake, Commerzbank promoted its finance chief Bettina Orlopp to the CEO job.

Orlopp bet on a plan to axe 3,900 mostly local jobs - out of a workforce of 36,700 full-time positions - to drive profits and convince investors Commerzbank can thrive as an independent company.

Commerzbank's profit has been rising, though higher interest rates have aided performance at most banks.

And Commerzbank still lags UniCredit, including on profitability and costs as a portion of income.

Under Orcel, costs at UniCredit's German unit, HVB, have fallen to 37% of income, from 61% at the end of 2020. That compares with 56% at Commerzbank.

The German bank's management and supervisory boards meet later this month for an annual strategy session.

Orcel is keeping up the pressure.

"We want Commerzbank to continue transforming. We think there needs to be an acceleration," he warned last week.

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