UniCredit boosts its stake in Commerzbank, applies to own up to 29.9% of the German bank

UniCredit announced on Monday it had increased its stake in German lender Commerzbank to around 21% and submitted a request to boost the holding to up to 29.9%.

The Italian bank acquired the additional Commerzbank shares through financial instruments, it said in a Monday statement. Earlier this month, UniCredit announced it had taken a 9% stake in Commerzbank, confirming that half of this shareholding was acquired from the German government.

“UniCredit believes that there is substantial value that can be unlocked within Commerzbank, either stand-alone or within UniCredit, for the benefit of Germany and the bank’s wider stakeholders. However, as was the case for UniCredit, such potential requires action for it to be crystalized,” the bank said on Monday.

It added that it has hedged the majority of its exposure to Commerzbank in order to provide UniCredit with “full flexibility and optionality to either retain its shareholding, sell its participation with a floored downside, or increase the stake further.”

Its next move will depend on engagement with Commerzbank’s management and supervisory boards as well as its “wider stakeholders in Germany,” the bank said.

Berlin has been a major shareholder of Commerzbank since it injected 18.2 billion euros ($20.2 billion) to rescue the lender during the 2008 financial crisis.

German government officials met last Friday to discuss the state’s shareholding in Commerzbank. They concluded that the bank is a “stable and profitable institute” and its “strategy is geared towards independence. The Federal government will accompany this until further notice by maintaining its shareholding,” the agency said in a Google-translated statement.

Shares of Commerzbank fell sharply in early trade Monday on this news, but pared losses after UniCredit announced it had increased its position and applied to acquire more.

Commerzbank shares were down 0.4% by 11:50 a.m. London time, while UniCredit shares fell 2.3%.

The state is likely to play a key role in any potential takeover of the German bank. Last week, UniCredit CEO Andrea Orcel told local media “it would be an aggressive move” for his firm to launch an unsolicited tender offer to buy out other investors in Commerzbank, Reuters reported.

Orcel also cited the German government’s “trust” in the Italian bank as the reason why it was able to buy 4.5% of the state’s stake in Commerzbank.

On Monday UniCredit noted that it has been present in Germany for nearly 20 years and stressed the importance of a “strong banking union” in Europe as being key for the bloc’s economic success.

Analysts are hoping that a move from UniCredit will encourage more cross-border consolidation in Europe’s banking sector which is often seem as more fragmented in comparison to the U.S.