After a year of UniCredit’s efforts to engage Commerzbank in merger discussions, CEO Andrea Orcel’s ambition to overcome German resistance remains elusive.
Nonetheless, the Italian bank’s drive for a bold alliance has prompted significant changes at Germany’s second-largest bank.
As UniCredit increased its stake to become the largest shareholder of Commerzbank, the German bank quickly revamped its leadership, restructured, and refined its strategic objectives to maintain its independence. Share prices have soared.
“Commerzbank is now operating on a different level than it was a few years ago,” said Andreas Thomae, a corporate governance specialist at Deka, a major investor in the bank.
On September 11 last year, UniCredit surprisingly announced it was acquiring Commerzbank shares. Orcel promptly expressed his desire for merger talks, sparking significant resistance from Germany.
The situation set Italy’s second-largest bank against the German establishment, testing Germany’s ability to resist foreign bids and the feasibility of cross-border banking mergers in Europe.
“Even though there are no ongoing discussions, it doesn’t mean a plan isn’t in place. Because we have one,” Orcel informed bankers at a conference in Frankfurt last week.
Regardless of the eventual outcome, one fact stands out: investors are applauding the transformations at Commerzbank.
Ian Lapey, portfolio manager of the Gabelli Global Financial Services Fund at Gabelli Funds, noted Commerzbank’s “self-improvement plan” resulted in enhanced financial performance and a higher stock price.
“Orcel’s involvement has pushed Commerzbank to adopt more ambitious return targets, which is beneficial,” said Lapey, who considers Commerzbank his top stock pick for 2025.
Commerzbank’s shares have more than doubled since UniCredit’s initial approach, surpassing the 83% rise of the Italian bank, though recent analyst downgrades have dimmed the stock’s appeal, suggesting the turnaround is largely priced in. Shortly after UniCredit began increasing its stake, Commerzbank promoted finance chief Bettina Orlopp to CEO.
Orlopp initiated a plan to cut 3,900 mostly local jobs from a workforce of 36,700 full-time positions to boost profits and convince investors of Commerzbank’s potential as an independent entity.
Commerzbank’s profits have been climbing, though higher interest rates have benefited most banks.
Yet, Commerzbank still trails UniCredit in areas such as profitability and cost efficiency relative to income.
Under Orcel, costs at UniCredit’s German division, HVB, have fallen to 37% of income, a significant drop from 61% at the end of 2020, compared with Commerzbank’s 56%.
The management and supervisory boards of the German bank are set to meet later this month for their annual strategy session.
Orcel maintains the pressure.
“We want Commerzbank to continue its transformation. We believe there needs to be an acceleration,” he cautioned last week.
