German officials stunned by UniCredit raid on Commerzbank

Italy's UniCredit has stunned German authorities with its potential multi-billion-euro merger with Frankfurt-based Commerzbank, sparking a sharp reaction in Berlin.

Market observers told CNBC that the takeover could cause a sense of national embarrassment for the German government, which is strongly opposed to the move, while arguing that the outcome of the takeover attempt could also put the very meaning of the European project at stake.

Milan-based UniCredit announced on Monday that it had increased its stake in Commerzbank to about 21% and submitted a request to increase this stake to 29.9%. This comes after UniCredit's move to take a 9% stake in Commerzbank earlier this month.

“If UniCredit can get Commerzbank to its efficiency level, profitability will increase tremendously,” Octavio Marenzi, CEO of consulting firm Opimas, told CNBC's “Squawk Box Europe” on Tuesday.

“But [German Chancellor] Olaf Scholz is not an investor. He is a politician and he is very concerned about jobs. And if you look at what UniCredit has done in terms of reducing things in its Italian operations or especially its German operations, it has been quite impressive,” Marenzi said.

Scholz on Monday criticised UniCredit's decision to increase pressure on Commerzbank, calling the move an “unfriendly” and “hostile” attack, Reuters reports.

Meanwhile, Commerzbank Vice Chairman Uwe Tsaige on Tuesday opposed a potential takeover by UniCredit. Speaking outside the lender's headquarters in central Frankfurt, Tsaige said the message was simple and clear: “We don't want that.”

“I feel like vomiting when I listen to his promises of cost savings,” Tsegaye reportedly said, referring to UniCredit CEO Andrea Orcel.

In addition, Commerzbank supervisory board member Stefan Wittmann told CNBC on Tuesday that up to two-thirds of the bank’s jobs could be lost if UniCredit successfully completes the takeover.

The bank has not yet responded to a request for comment on Wittman’s statement.

Hostile takeover bids are not common in the European banking sector, although in May Spanish bank BBVA surprised markets by making an all-share takeover offer for domestic rival Banco Sabadell. The latter Spanish lender rejected the bid.

Opimas' Marenzi said the German government and trade unions “are basically looking at this and saying this means we could lose a lot of jobs in the process – and it could be a pretty significant number of jobs.”

“The other thing is it might be a bit of an embarrassment nationally that Italians are coming in and teaching them how to run their banks,” he added.

A German government spokesman was not immediately available when contacted by CNBC on Tuesday.

Germany's Scholz has previously pushed for the formation of a European banking union. The EU's executive arm, created in the wake of the 2008 global financial crisis, announced plans to create a banking union to improve regulation and supervision of lenders across the region.

Craig Cobain, former global head of equity capital markets at Bank of America, said the German government would have to find “very good” reasons to block UniCredit's move on Commerzbank, warning that it also had to stay consistent with the principles of European integration.

“I think it would be very difficult for UniCredit to acquire or do any deal on Commerzbank without the approval of the German government, as a practical matter – but I think if Germany wanted to intervene it would have to find a legitimate excuse. [or] “If he wants to stop this effort by UniCredit, he should do so,” Cobain told CNBC's “Squawk Box Europe” on Tuesday.

“Germany has signed the agreement.” [EU’s] single market, it has signed up to the single currency, it has signed up to the single currency [the] He added: “This is part of the banking union and therefore blocking the merger on grounds of national interest would be inconsistent with these principles.”

“And I think that’s really what’s at stake here: What does it mean? [the] Banking union? And what is the point of the European project?”

Former European Central Bank chief Mario Draghi said in a report published earlier this month that the EU needs hundreds of billions of euros in additional investment to meet its key competitiveness goals.

Draghi, who has previously served as Italian prime minister, also cited in the report the “imperfect” banking union as a factor hampering the competitiveness of the region's banks.

— CNBC's April Roach contributed to this report.