By Tom Sims and Christian Kraemer

FRANKFURT (Reuters) -Germany will not sell any more shares in Commerzbank (ETR:) for now and the bank’s strategy is “geared towards independence,” the country’s Finance Agency said on Friday, in the clearest sign yet that the government doesn’t currently favour a takeover of the nation’s No. 2 lender.

The statement comes days after Italian bank UniCredit announced it had swooped in to buy a 9% stake in Commerzbank to become its second largest shareholder, and its Chief Executive Andrea Orcel signalled his merger ambitions.

But UniCredit’s move – a deal codenamed ‘Flash’ after Orcel’s dog – took Berlin by surprise and triggered opposition from labour unions and a defence strategy from Commerzbank.

The German government, which still owns 12% of Commerzbank after selling 4.5% of its shares to UniCredit, would play a key role in whether any deal can take place.

However, over the past week labour unions and Commerzbank management have called on the government to hold off on any further share sales.

The Finance Agency, which is part of the German finance ministry and manages government holdings, said a committee meeting of government officials on Friday had decided it “will not, until further notice, sell any additional shares”.

UniCredit declined to comment. A Commerzbank spokesperson said the bank had a strategy that works.

“Commerzbank is a stable and profitable institute. The bank’s strategy is geared towards independence. The Federal government will accompany this until further notice by maintaining its shareholding,” the agency said.

An official from Germany’s finance ministry, who did not wish to be identified, on Friday described the recent sale of part of Commerzbank’s stake as a test to see whether there were strategic buyers in the market. But others in the government have said they had wanted the shares that all went to UniCredit to go to a broad base of investors.

STRONGER COMPETITOR

UniCredit CEO Orcel has said he wants to start talks on a merger he says would “create a much stronger competitor” in Germany. His gambit comes after years of calls for Europe to improve its banks’ competitiveness in the face of larger U.S. and Asian rivals. 

He faces big hurdles.

Cross-border European banking deals have been stymied by factors including years of paltry profitability that have left lenders too weak to try for tie-ups. And regulatory barriers to moving resources freely across borders have been reinforced by politicians’ preference for home-grown ‘champions’.   

A turnaround of UniCredit has overcome one of the obstacles. The bank, unlike rivals, has the financial firepower for a bold combination after reaping bumper profits.

But national politics will be the hard part, and some investors have cautioned that cross-border deals remain difficult.

Anke Reingen, a banking analyst at RBC, said UniCredit was now unlikely to make a takeover offer soon.

“We do not think a deal is off the table, forever, but any move is likely to be later than we had initially expected,” she said.

Friday’s announcement means the German government’s plan is to now hold its Commerzbank shares beyond the 90-day lockup agreed at the time of the share sale last week, according to a person familiar with the discussions.

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