UniCredit has dropped out of an auction for a Berlin community lender in the face of competition from state-owned banks determined to stop the it from falling into private hands, sources close to the matter said.
The auction of Landesbank Berlin is the first-ever sale of a German savings bank -- local state-owned lenders with a loyal customer base -- in which private-sector commercial banks can bid.
The city of Berlin announced that seven would-be buyers had joined the second round of bidding for the group which one source said carried a price tag of more than 4 billion euros ($5.4 billion).
UniCredit, however, is unwilling to trump the group of German savings banks who have entered the second round and is out of the race.
UniCredit's departure now leaves Commerzbank as the only private commercial bank in the auction.
"The savings banks want to keep Landesbank Berlin in the family," said one source.
The Italian bank's chief executive Alessandro Profumo recently hinted as much when he ruled out paying a "high political premium."
Quitting the auction gives UniCredit a free hand to look elsewhere after it asked shareholders to allow it hike its capital by up to 7 billion euros for acquisitions.
The Bank Auction
Earlier this week, the city of Berlin opened the second round of the auction, which gives bidders detailed access to internal information about the bank before they decide whether to make a binding offer.
Other bidders who got through include BayernLB, JC Flowers and Lone Star. Private equity investor Cerberus is no longer in the running, another source said.
The sale of Landesbank Berlin -- where almost one in two Berliners bank -- offers a rare foothold in one of Europe's most cutthroat banking markets and is the biggest bank sale in
Germany since UniCredit swooped on Bavaria's HVB two years ago.
The sale is controversial in Germany. The country's savings banks, which are not for profit, want to stop the bank being sold to a commercial rival, because they fear this would undermine a system that enshrines their dominance.
The bank is being sold as part of a deal with Brussels whereby Berlin was allowed to rescue the lender after it was ruined by a property market collapse.