German authorities were left cold by UniCredit’s attack on Commerzbank

Italy’s UniCredit appears to have caught German authorities off guard with a potential multibillion-dollar merger of Frankfurt-based Commerzbank, a move that has sparked a fiery response from Berlin.

Market observers told CNBC that the attack may have created a sense of national shame among the German government, which is staunchly opposing the move, while arguing that the outcome of the takeover attempt could even jeopardize the very meaning of the European project .

Milan-based UniCredit announced on Monday that it had increased its stake in Commerzbank to around 21% and had filed a request to increase that stake to 29.9%. It follows UniCredit’s decision to take a 9% stake in Commerzbank earlier this month.

“If UniCredit can bring Commerzbank to their level of efficiency, there is a huge benefit in terms of increased profitability,” Octavio Marenzi, CEO of consultancy 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 the employment side of things. And if you look at what UniCredit has done in terms of downsizing in its Italian operations, and especially in its German operations, it has been quite impressive,” Marenzi said.

Scholz on Monday criticized UniCredit’s decision to raise the stakes against Commerzbank, describing the move as an “unfriendly” and “hostile” attack, Reuters reported.

Commerzbank Vice Chairman Uwe Tschaege reportedly opposed a possible takeover by UniCredit on Tuesday. Speaking outside the lender’s headquarters in central Frankfurt, Tschaege said the message was simple and clear: “We don’t want this.”

“It makes me want to throw up when I hear his promises of cost savings,” Tschaege added, referring to UniCredit CEO Andrea Orcel.

In addition, Stefan Wittman, member of the supervisory board of Commerzbank, told CNBC on Tuesday that as many as two-thirds of jobs at the bank could disappear if UniCredit successfully carries out a hostile takeover.

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

Hostile takeover bids are not common in the European banking sector, although Spanish bank BBVA shocked markets in May when it launched an all-stock takeover bid for domestic rival Banco Sabadell. The latter Spanish lender rejected the offer.

Opimas’ Marenzi said the German government and unions are “basically looking at this and saying this means we could lose a lot of jobs in the process – and this could mean quite significant job losses.”

“The other thing is that there might be a bit of national shame if the Italians come in and show them how to run their banks,” he added.

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

The German Scholz has done that earlier urged the completion of a European banking union. Conceived in the wake of the 2008 global financial crisis, the European Union’s executive branch has announced plans to create a banking union to improve the regulation and supervision of lenders across the region.

Craig Coben, 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 this would also have to be in line with the principles surrounding European integration.

“I think it is very difficult for UniCredit to take over Commerzbank or reach an agreement on Commerzbank without the approval of the German government, purely for practical reasons – but I think Germany must find a legitimate excuse if it wants to intervene. [or] if it wants to block UniCredit’s approach,” Coben told CNBC’s “Squawk Box Europe” on Tuesday.

‘Germany has joined the [EU’s] the internal market, it has signed the common currency, it has signed it [the] banking union and therefore it would be contrary to these principles to block the merger on the grounds of national interest,” he continued.

“And I think that’s really what’s at stake here: what is the meaning of [the] banking union? And what is the meaning of the European project?”

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

Draghi, who previously served as Italy’s prime minister, also cited the “incomplete” banking union in the report as a factor that continues to hinder the competitiveness of the region’s banks.

— CNBC’s April Roach contributed to this report.