UniCredit increased its stake in Commerzbank from 9% to 21% in a maneuver that mirrored the tactics made notorious in hostile takeover battles more than a decade ago, building up its stake in secrecy.<\/p>\n\n\n\n
The loophole in EU disclosure rules that existed for the legal obligation, which existed in the past, to disclose positions created through derivatives that guaranteed access to shares only at a later point in time
has been closed, making it impossible to create large-scale secret locations.<\/p>\n\n\n\n
Tighter disclosure rules for financial derivatives provided a different opportunity: UniCredit was able to disclose a 21% stake in Commerzbank while complying with rules that currently block it from owning more than 10%.<\/p>\n\n\n\n
The basis of this plan is based on proprietary and arbitrage trade.<\/p>\n\n\n\n
The proprietary & arbitrage trade<\/strong><\/p>\n\n\n\n Eurozone laws governing bank ownership-proprietary and control mean that no one can buy more than 10% of a bank without first getting the go-ahead from the European Central Bank.<\/p>\n\n\n\n The approval may be typical for an EU-based bank such as UniCredit, which has already said it would seek the ECB’s consent after acquiring its first 9% stake.<\/p>\n\n\n\n But the process can take months, allowing competitors to build their own positions, hedge funds to acquire shares and a target to back their defense.<\/p>\n\n\n\n However, the ECB’s approval is only required for UniCredit to take control of the voting rights attached to the Commerzbank shares.<\/p>\n\n\n\n The rules neither prevent the Italian bank from acquiring a financial position in the target in advance nor prohibit signing contracts now to receive the shares after central bank approval.<\/p>\n\n\n\n Stock ownership disclosure rules in the securities laws enacted after the Porsche and Schaeffler disputes have a different focus: they require an investor to disclose the position when he owns \u2014 directly or indirectly through derivatives \u2014 a 5% stake or when they reach higher thresholds, one of which is 20%.<\/p>\n\n\n\n That discrepancy allowed UniCredit to unveil a huge jump in its stake in Commerzbank, turning it from a minority investor to the single largest shareholder.<\/p>\n\n\n\n Its position is also large enough to make it difficult for potential rivals to make a counteroffer for the German bank, should it decide to pursue a takeover.<\/p>\n\n\n\n The “Cavalry”<\/strong><\/p>\n\n\n\n At the core of the transaction are the contracts that UniCredit has entered into with Barclays and Bank of America.<\/p>\n\n\n\n Both investment banks entered into so-called total return swaps with UniCredit, effectively pledging to replicate the financial performance of Commerzbank’s stock.<\/p>\n\n\n\n If the German bank’s shares rise or the bank pays its dividend, counterparties will pay the change in value to UniCredit.<\/p>\n\n\n\n If the stock falls, UniCredit has to make up the difference.<\/p>\n\n\n\n Barclays and BofA also pledged to physically deliver the Commerzbank shares to UniCredit at a later date if the Italian bank still wants them.<\/p>\n\n\n\n The two investment banks will earn 12 million euros in commissions and other income from the trading, which has a notional value of 2.3 billion euros.<\/p>\n\n\n\n The revenue each bank stands to receive could rise to 40-50 million euros if the contracts are extended beyond 2026 or otherwise modified.<\/p>\n\n\n\n It all started in 2023<\/strong><\/p>\n\n\n\n Preparations to take over the German bank began in 2023, when the Italian bank quietly built up a direct stake of just under 3%, which was below the first disclosure threshold for direct holdings.<\/p>\n\n\n\n In August 2024, when rumors began to circulate that the German government may soon start selling its 16.5% stake, UniCredit acquired another 1.7% through a much smaller total return swap, still below limit of 5%.<\/p>\n\n\n\n Then on the night of September 10, the Italian bank bought another 4.5% from the German government when it offered financial investors in a block trade, reaching the 5% disclosure threshold for the first time and then disclosing its position in 9%.<\/p>\n\n\n\n By Sept. 23, he had converted the original, smaller total return swap into shares.<\/p>\n\n\n\n On the same day, UniCredit introduced two much larger total return swaps, related to stakes of 5% and 6.53%, due in 2026.<\/p>\n\n\n\n A two-year exercise period \u2014 much longer than the expected six-to-12-month time frame for gaining regulatory approval \u2014 shows the Italian bank is “patient.”<\/p>\n\n\n\n UniCredit traded the derivatives without external advisers, relying on in-house expertise.<\/p>\n\n\n\n Total return swaps can come with risks.<\/p>\n\n\n\n UniCredit has eliminated this risk with another level of financial engineering.<\/p>\n\n\n\n It uses a so-called “collar” to hedge Commerzbank’s position against falling share prices while giving up large parts of the upside.<\/p>\n\n\n\n The structure – consisting of opposite call and put options – essentially locks in last week’s Commerzbank share price.<\/p>\n\n\n\n The careful build-up of stakes served to underline the Italian bank’s seriousness in gaining control of Commerzbank despite political opposition.<\/p>\n\n\n\n UniCredit’s trades have also made it much more difficult for potential rivals such as Deutsche Bank, BNP Paribas or ING to build a similar derivatives position in Commerzbank.<\/p>\n\n\n\n While Commerzbank is a highly liquid stock, almost a third of the total market capitalization is linked: 12% owned by the government and 21% controlled by UniCredit.<\/p>\n","protected":false},"excerpt":{"rendered":" UniCredit increased its stake in Commerzbank from 9% to 21% in a maneuver that mirrored the tactics made notorious in hostile takeover battles more…<\/p>\n","protected":false},"author":1,"featured_media":20751,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[620,946],"tags":[590,1787,6023,6022,2732],"class_list":["post-20750","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-companies","tag-commerzbank","tag-mergers-acquisitions","tag-swaps","tag-total-return-swaps","tag-unicredit"],"_links":{"self":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/20750","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=20750"}],"version-history":[{"count":1,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/20750\/revisions"}],"predecessor-version":[{"id":20752,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/20750\/revisions\/20752"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/media\/20751"}],"wp:attachment":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=20750"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=20750"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=20750"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}