UniCredit buys protection for Commerzbank stake, source says

Milan — UniCredit has further hedged potential downside risks on its stake in rival Commerzbank by signing financial derivative contracts with Jefferies to keep its options open, a person close to the matter said.

UniCredit has sparked outrage in Germany by becoming the biggest private investor in Commerzbank and preparing the ground to potentially become its single biggest shareholder, leapfrogging the Berlin government, which owns 12%.

UniCredit’s action, which will require European Central Bank approval, is widely seen as a test for the independence of the ECB and the future of the European banking union.

UniCredit bought a 9% Commerzbank stake in September, including from the German government, and used derivatives to raise its holding to nearly 21%, conditional on supervisory approval.

The Italian bank has said it could either raise or cut the stake, having bought protection to limit any losses linked to market moves.

Confirming a report by Bloomberg News, the person said the deal with Jefferies provided further protection against any downside.

Jefferies has built an about 5% UniCredit stake with derivatives, the person added. Jefferies declined to comment.

UniCredit has applied to the ECB to be able to acquire up to 29.9% of Commerzbank.

CEO Andrea Orcel has said the application to the ECB will give UniCredit flexibility to pursue the best course of action.

Italy’s second-biggest bank by assets has said a merger with Commerzbank would be the best outcome for the industry and Europe. But it has not ruled out selling its Commerzbank holding and taking a profit given the rise in Commerzbank shares since it bought the stake.

Commerzbank has said it wants to pursue a strategy based on independence and the German government has expressed its support for the stand-alone approach.

Reuters