UniCredit Doubles Equity Stake in Commerzbank to 20% by Converting Derivatives

By Elena Vardon

UniCredit said it converted part of its position in peer Commerzbank into stock to double its equity stake, becoming the largest shareholder of the German lender that it hopes to engineer a merger with.

The Italian bank said late Tuesday that it now owns around 20% of Commerzbank's shares and effective voting rights after the conversion of a 10% interest it previously held in derivatives. The transaction follows approvals from the European Central Bank, German antitrust regulator and the Federal Reserve, it said.

UniCredit has been circling Commerzbank since September, when it first disclosed that it amassed an around 9.5% stake in the German group through share purchases and flagged interest in a potential tie-up. In the following months, it accumulated financial contracts tied to Commerzbank shares in the form of derivatives that would take its holding to roughly 28%.

The moves prompted a hostile reaction from German officials and union leaders, who said a full acquisition could cost jobs, cede financial clout to Italy and deprive smaller German businesses of funding. Commerzbank's management also rebuffed the approach and has repeatedly reiterated its standalone stance.

UniCredit already has a presence in Germany through its subsidiary HypoVereinsbank, and Chief Executive Officer Andrea Orcel has signaled an appetite for deals to grow the lender into a European champion and create a counterweight to U.S. megabanks.

Orcel has also described UniCredit's holding in Commerzbank as a financial investment and said the bank could opt to sell it.

Through the conversion of the derivatives into stock, UniCredit has effectively leapfrogged the German government as Commerzbank's top shareholder. Berlin still owns a 12% stake in the lender it bailed out during the financial crisis.

UniCredit eventually intends to control around 29% of Commerzbank voting rights by converting the remaining 9% in financial instruments it holds into physical shares, it added.

Write to Elena Vardon at elena.vardon@wsj.com