By Elena Vardon

UniCredit said it received authorization from the European Central Bank to increase its stake in potential takeover target Commerzbank to up to 29.9% but that it will wait until next year before deciding whether to make a move.

The Italian bank said it still needs the approval from Germany's competition regulator and others before its around 18.5% stake held through derivatives can be converted into physical shares.

In December, UniCredit raised its shareholding in the German lender to 28% by entering into financial contracts tied to the shares. This built on previous efforts to stock up its holding in the rival since September that triggered political opposition from the government, which still owns a 12% stake in the bank it bailed out during the financial crisis.

Expectations that it could engineer a merger were reignited at the end of last year when UniCredit sought ECB approval to raise its shareholding just below the 30% threshold at which it would have to launch a mandatory takeover offer under German regulations.

The regulatory nod from the ECB on Friday was largely anticipated given its supportive stance on European banking consolidation and UniCredit's solid financial position.

Commerzbank last month outlined a new strategy--with higher profitability targets and returns--to defend its independence and convince investors of its standalone prospects.

"Our original timeline for deciding on whether to proceed or not with a potential combination is now likely to extend well beyond the end of 2025," UniCredit said, adding that many factors could determine any further steps.

"Only significant time will reveal if [Commerzbank's] plan is executable and hence determine whether such price appreciation is justified and sustainable," it said.

The group said it is also waiting to start a constructive dialogue with Germany's new government once it is formed following last month's elections.

Commerzbank has taken note of the ECB's approval. "We are convinced of our strategy, which aims for profitable growth and value increase, and we are focusing on its successful implementation," a spokesperson said.

Shares in UniCredit edged down 0.7% in early morning exchanges in Europe. Commerzbank's shares rose 1.7%, taking the stock's year-to-date gains to 50%.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

March 14, 2025 04:57 ET (08:57 GMT)

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