Yahoo Finance Bond Investors Bet on UniCredit Success in Commerzbank Takeover
(Bloomberg) -- Bond investors are starting to see an increasing likelihood that Italian lender UniCredit SpA will take over Commerzbank AG.
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The borrowing costs of the two major European lenders converged to the tightest since April 2023 as investors price in a deal, particularly after UniCredit’s Chief Executive Officer Andrea Orcel said on Thursday that a full takeover of Commerzbank is an option. The Milan-based bank has already built a 9% stake in the German financial institution.
The bid by UniCredit this week to grab all the shares offered by the German government took investors by surprise, with Commerzbank shares surging over 20% in three days. While bond moves have been more moderate, years of efforts by policymakers to better unify the banking systems of euro-zone countries — via a capital markets union — may help the deal, one investor said.
“We just are getting positive momentum on the capital markets union and Germany has budgeting needs as well,” said Kaspar Hense, a fixed-income portfolio manager at RBC BlueBay Asset Management. “Getting decently compensated, albeit by a takeover from an Italian bank, would suit them very well,” he added, declining to comment on his bond holdings.
Two investors who hold Commerzbank’s Additional Tier 1 bonds, a risky type of debt that lenders issue for regulatory reasons, said that bets on a takeover going through were responsible for a flurry of trading around both names. They asked not to be identified on their holdings.
Commerzbank’s AT1 notes redeemable in late 2027 posted their biggest two-day gain this year, taking yields down toward 7%. That makes them an outlier in a market where the average yield among European banks’ AT1s has nudged higher this week.
Meanwhile the yield on UniCredit’s AT1 notes callable around the same period has climbed to within a percentage point of the German lender’s debt. Despite the market moves, any takeover approach could still face hurdles from political roadblocks or opposition by labor unions.
It’s not just the riskiest type of bank debt that is serving as a bet on a deal happening. The spread gap between the two lenders’ senior non-preferred bonds has tightened this week, and looks set to close further in a tie-up, according to ABN Amro Bank NV’s head of credit strategy Shanawaz Bhimji.
These senior non-preferreds, known as SNP, are bonds designed to take losses — or be bailed-in — once a bank is no longer viable.
“Commerzbank is trading at a wider spread than UniCredit in SNP, so it’s likely that their holders would benefit most,” said Bhimji. “In terms of larger size and cost efficiencies, I see positive effects materializing, and this could give the combination a better credit profile than UniCredit alone.”
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