UniCredit CEO says Europe needs Commerzbank takeover as he seeks deal

By Valentina Za

MILAN (Reuters) -UniCredit's investment in Germany's Commerzbank has laid the basis for talks over a tie-up that could help Europe build stronger banks to compete with U.S. and Asian rivals, the Italian lender's CEO said on Thursday.

UniCredit's 9% stake, unveiled on Wednesday, makes it Commerzbank's largest investor after the German government. The move sparked a 17% jump in Commerzbank's shares, with gains continuing on Thursday as UniCredit CEO Andrea Orcel laid out plans to buy more of its German rival, or even take it over.

"We're now an investor, we can engage constructively as to whether we all want to create something more than just the value that can be created by Commerzbank stand alone," Orcel told Bloomberg television.

Orcel said UniCredit, which has sought European Central Bank approval to increase its Commerzbank stake above 9.9%, was in no rush for a potential deal, and wanted to avoid antagonising any stakeholders.

A source with knowledge of the matter told Reuters on Wednesday that Orcel had invited Commerzbank management to begin merger talks. Two other sources told Reuters that Commerzbank wanted to remain independent. Commerzbank declined to comment.

"I think the ultimate goal is what everybody talks about: Europe needs stronger banks. Europe needs cross border (banks) ... so that we are an economic bloc that can hold its own against the U.S. and China," Orcel said.

Political resistance and regulatory hurdles have long held back cross-border mergers in Europe, with bank executives complaining they would struggle to drum up shareholder support for such transactions.

Orcel said UniCredit's existing German business would also give it scope to achieve savings.

"We think there is space in Germany, given the fragmentation of the market, to add further value by consolidating," he said.

Costs at UniCredit's German business account for 40% of its income, against 60% at Commerzbank.

Orcel said UniCredit had started buying Commerzbank shares on the market over the summer when rumours intensified that the German government may sell down its 16% stake. It built a 4.5% stake at "quite attractive" prices.

"When the government actually decided to do it, and we were part of the investors they called to buy their stake, we made an offer, the offer was accepted in full and we moved from 4.5% to 9% in one go," he said.

UniCredit outbid rivals in the process, and Orcel said Berlin was "well aware" of its existing 4.5% holding.

Shares in UniCredit, which closed flat on Wednesday, were up 2.7% at 1020 GMT.

The Europe STOXX 600 Banks index was up 1.9%, fuelled by the possibility of further dealmaking as bank CEOs look for new ways to drive profits now that the boost from interest rates is set to decline. "We would expect more newsflow on European bank M&A going forward, which could be a positive for valuations for banks that have historically been seen as targets," JPMorgan analysts said in a note to clients. "Banking sector M&A historically has been triggered by momentum from deals being announced."

(Reporting by Valentina Za in Milan; Additional reporting by Marc Jones in London and Tom Sims in Frankfurt; Editing by Mark Potter)