By Valentina Za

MILAN (Reuters) -Italy’s UniCredit on Monday launched a surprise 10 billion euro ($11 billion) bid for domestic peer Banco BPM, which CEO Andrea Orcel said would take precedence over any potential move on Germany’s Commerzbank.

Orcel told an investor call the decision had been prompted by Italian banking consolidation heating up after Banco BPM this month bought a stake in rival Monte dei Paschi di Siena and launched a bid for fund manager Anima Holding.

“We cannot remain absent from that move,” he said.

The all-share proposal, which offers a 0.5% premium for Banco BPM shareholders, follows previous aborted attempts to move on its rival rooted in Milan’s wealthy Lombardy region, an area where UniCredit’s presence is limited.

“I don’t think there is a big surprise at this choice of partner here. There shouldn’t have been (on) Commerzbank, there should be even less on BPM,” Orcel added.

Since taking the reins at UniCredit in 2021, the veteran dealmaker has said he would consider external growth, but first focused on driving a near five-fold increase in UniCredit’s share price.

Italy’s second-largest bank had readied a buyout offer for Banco BPM in 2022 just before the Ukraine conflict broke out.

UniCredit on Monday offered 0.175 of its common stock for each BPM share, valuing them at 6.67 euros each, a premium of about 0.5% to Friday’s closing price, or 15% to the day before BPM announced its offer this month to gain full control of Anima Holding.

Orcel rocked Europe’s financial establishment in September by announcing UniCredit had built a stake in Commerzbank, a move that sparked widespread opposition in Germany and speculation about if, when and how Orcel would try to buy all of the Frankfurt-based bank.

On Monday Orcel addressed potential concerns about UniCredit engaging on two separate fronts at once.

“There is no management stretch,” he said.

“By the time we would have closed the second bid, we would have integrated the first bank,” he told a call following the Banco BPM offer.

Commerzbank shares slid nearly 7% in Frankfurt, while in Milan UniCredit shares fell 4% and BPM shares rose 3.2%.

The near 21% stake UniCredit has built in Commerzbank, in part with derivatives conditional on supervisory approval, “remains an important investment with downside protection and substantial upside potential,” UniCredit said.

Orcel’s advances on Commerzbank sparked a backlash due to political opposition to a takeover by an Italian lender that would lead to job cuts and expose Commerzbank to Italian sovereign risk.

On Friday Orcel had said discussions around a possible Commerzbank acquisition would need to wait for Germany to form a new government.

The BPM Banco move took Commerzbank by surprise, according to two people familiar with the matter. One person familiar with the bank’s thinking said that while it could signal that a Commerzbank takeover was less likely, the move was hard to interpret.

The sources were not authorised to speak to media and declined to be identified.

ITALIAN CONSOLIDATION

Banco BPM, Italy’s third-largest bank, this month bought 5% in bailed-out rival Monte dei Paschi (MPS) from the government, a move seen as paving the way for an eventual combination of the two mid-sized lenders as the state pulls out of MPS entirely.

BPM also this month launched a 1.6 billion euro ($1.7 billion) buyout offer for Anima as it seeks to boost net fees in the face of falling interest rates.

UniCredit said it had taken note of the Anima bid. Orcel has worked to boost fee income at UniCredit and make its profit less reliant on income from lending.

The deal with Banco BPM, which must receive European Central Bank and antitrust approval, could be concluded by June 2025, UniCredit said.

UniCredit is also waiting for ECB approval to buy up to 29.9% of Commerzbank. BPM did not immediately respond to a Reuters request for comment.

($1 = 0.9542 euros)

(Reporting by Valentina Za in Milan, Additional reporting by John O’Donnell in Frankfurt and Shubham Kalia in Bengaluru; Editing by Abinaya Vijayaraghavan, Savio D’Souza, Edwina Gibbs and Jan Harvey)

---