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Exclusive: UniCredit advances toward takeover bid for Germany's Commerzbank – sources

Kitco News

FRANKFURT/LONDON (Reuters) - UniCredit has stepped up preparations for a potential bid for Germany’s Commerzbank by hiring investment bankers, including a former top German official, three people familiar with the matter said.

UniCredit had engaged Lazard and its banker Joerg Asmussen, the former German deputy finance minister, along with JP Morgan on a possible takeover, the sources said, for a potential deal that could see one of Italy’s largest lenders pivot away from its struggling home country toward Germany.

Although it is unclear whether and when a bid could be made, UniCredit’s top management has long been interested in expanding in Germany, several sources familiar with their thinking said. It already owns HVB, a large German lender based in Munich.

But the Italian bank, which has been concentrating on its own turnaround plan that concludes this year, had been waiting first to see the outcome of merger talks between Commerzbank and its larger Frankfurt neighbor, Deutsche Bank.

In recent weeks, those talks unraveled, placing Commerzbank, which has a market valuation of around 9.3 billion euros ($10.4 billion), back on the agenda for UniCredit Chief Executive Jean Pierre Mustier.

The advances of UniCredit come as the Dutch bank ING Groep has also shown interest in Commerzbank, sources familiar with the matter said. One person with knowledge of those informal talks described them as “intensive”.

Mustier has hired Lazard in the hope that Asmussen can lobby for the deal with finance minister Olaf Scholz. Both have roots in the German Social Democrat Party.

UniCredit, JPMorgan, Lazard, Commerzbank and Germany’s finance ministry declined to comment. Asmussen did not immediately respond to a request for comment.

ING also declined to comment.

JOBS AT RISK

The success of any deal will hinge in part on the German government, which owns a 15 percent stake in Commerzbank, stemming from a bailout during the financial crisis. Some officials had hoped to keep Commerzbank in German hands, which is why they pushed for a deal with Deutsche Bank.

One German official said that the government would be open to a merger between Commerzbank and a foreign European rival, such as UniCredit.

But a deal that would tie one of Germany’s biggest banks to Italy, struggling with heavy debts, could ultimately prove hard to sell in Berlin.

Any deal would be one of the largest involving banks across European borders since the financial crisis. Such mergers are still hard to pull off because laws and regulations still vary from country to country despite the single market, bankers say.

Any initiation of talks is sure to ruffle feathers at Commerzbank, where employees - fearful for their jobs - had overwhelmingly opposed a tie-up with Deutsche Bank. Unions had forecast as many as 30,000 lost jobs.

ITALIAN EXPOSURE

UniCredit last week announced that it was reducing its exposure to Italy to boost its financial strength, including by cutting down its portfolio of Italian government bonds.

The move could help a deal in Germany, where UniCredit’s high exposure to Italy is seen as a barrier to a deal, several bankers said.

UniCredit had 54 billion euros of Italian government bonds at the end of March.

    CEO Jean Pierre Mustier said, however, that the bank was very proud of being listed and headquartered in the euro-zone’s third biggest economy.

Italian UniCredit shareholders are in favor of any deal that can boost its market value, but some demand that the bank retain its Italian identity, a person close to the matter said.

Commerzbank’s talks with Deutsche Bank ended last month after six weeks of negotiations. The banks attributed the failure to the risks of doing a deal, restructuring costs and capital demands.

Last week, Commerzbank played down the prospects of an immediate takeover approach by a foreign bank.

Commerzbank Chief Executive Martin Zielke told staff during the merger talks with Deutsche that Commerzbank does not have the market share for costly investments, fuelling speculation of an alternative tie-up if talks fell through.

Additional reporting by Silvia Aloisi and Gianluca Semeraro in Milan, Hans Seidenstuecker and John O'Donnell in Frankfurt, Klaus Lauer in Berlin and Toby Sterling in Amsterdam; Writing by John O'Donnell and Tom Sims; Editing by Keith Weir

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