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Divided between two takeover courtships, UniCredit’s Andrea Orcel still has room to sweeten his bid for Italy’s Banco BPM, analysts say, while political turmoil stalls a deal with Germany’s Commerzbank.

Once a key architect in the controversial 2007 takeover and later break-up of Dutch bank ABN Amro, Orcel revisited his ambitions for cross-border consolidation with the September announcement of a surprise stake build in Commerzbank. Until recently, the latter had been the subject of speculation as a potential merger partner for Germany’s largest lender, Deutsche Bank.

Amid resistance from the German government — and turbulence in Chancellor Olaf Scholz’s ruling coalition — UniCredit also last month turned its eye to Banco BPM, with a 10 billion-euro ($10.5 billion) offer that the Italian peer said was delivered on “unusual terms” and does not reflect its profitability and growth potential.

Along the way, Orcel drew frowns from the Italian administration, with Economy Minister Giancarlo Giorgetti warning that “the safest way to lose a war is engaging on two fronts,” according to Italian newswire Ansa.

Analysts say that the spurned UniCredit — whose CET1 ratio, reflecting the bank’s financial strength and resilience, stood above 16% in the first three quarters of this year — can still improve its domestic bid.

“There is scope for increasing the [Banco BPM] offer,” Johann Scholtz, senior equity analyst and Morningstar, told CNBC.

However, he warned of “limited” room to do so. “Think more than 10% [increase], you are probably going to dilute shareholder earnings.”

UniCredit’s starting proposal was for an all-stock deal that would merge two of Italy’s largest lenders, but offered just 6.657 euros for each share.

Both Scholtz and Filippo Alloatti, senior credit analyst at Federated Hermes, said that UniCredit could sweeten the proposition by tacking on a cash component.

“Remember, that’s the second attempt from Orcel to buy [Banco] BPM … I don’t think there’ll be a third attempt. I think that either they close [the deal] now, or probably he walks. So I believe a cash component could be on the table,” Alloatti told CNBC. Orcel last month labeled Banco BPM as a “historical target” — stoking the flames of media reports that UniCredit had previously sought a domestic union back in 2022.

The Italian stage was primed for M&A activity early last month, after Banco BPM acquired a 5% holding in Monte dei Paschi — the world’s oldest lender and another former takeover target of UniCredit, until talks collapsed in 2021 — when Rome sought to reduce its stake in the bailed-out bank.

Critically, Scholtz noted, UniCredit’s offer “puts [Banco] BPM into a difficult position,” triggering a passivity rule that impedes it from any action that might hinder the bid without shareholder approval — and could stifle Banco BPM’s own early-November ambitions to acquire control of fund manager Anima Holding, which also owns a 4% stake in Monte dei Paschi.

A consolidation offensive could be UniCredit’s best defense in an environment of easing interest rates.

“Multi-year long restructuring, balance sheet de-risking and materially improved loss absorption capacity” propelled UniCredit to a BBB+ long-term debt rating from Fitch Ratings in October, above that of Italy’s own sovereign bonds.

But the lender must now contend with an environment of loosening monetary policy, where it is “more exposed to changes in interest rates due to its relatively limited presence in asset management and bancassurance,” Alessandro Boratti, analyst at Scope Ratings, wrote last month.

Both takeover prospects hedge some of that exposure. A Commerzbank union in Germany, where UniCredit operates through its HypoVereinsbank division, could create synergies in capital markets, advisors, payments and trade finance activity, JPMorgan analysts signaled in a November note. They added that such a union would produce a “limited” advantage in funding, as the two banks’ spreads already trade closely.

Closer to home, Scholtz notes, Banco BPM offers complementary strength in asset management. Alloatti said that absorbing a domestic peer is also one of the Italian lender’s only remaining options to take a leading role on the home stage.

“There really isn’t much they can buy in Italy to bridge the gap with [Italy’s largest bank] Intesa. Probably Banco BPM … that’s why they looked at it in the past,” Alloatti said. “Banco BPM is the only bank they could potentially buy to get somewhat closer to Intesa.” Intesa Sanpaolo is currently Italy’s largest bank by total assets.

Approaching Banco BPM, KBW Analyst Hugo Cruz told CNBC in emailed comments, also has the “added value” of signaling to German shareholders that UniCredit has other M&A options available to it. He nevertheless stressed that the domestic acquisition bid is likely…