* UniCredit closing in on control of Commerzbank after

two-year battle

* Orcel changed UniCredit culture: leaner structure, tight

cost control

* UniCredit plans to cut costs at Commerzbank before merger

* Different Commerzbank business model a challenge, expert

says

By Valentina Za and Elvira Pollina

MILAN, Aug 14 (Reuters) - UniCredit's CEO Andrea Orcel has a

blueprint for Commerzbank: slash costs, strip out management

layers and push harder for revenue growth, a formula that has

helped transform the Italian lender into one of Europe's most

profitable banks.

Interviews with more than a dozen current and former UniCredit

executives show how that transformation was achieved,

and why replicating it at the German bank could prove far

harder.

Orcel said last month Commerzbank should adopt his

blueprint from January, having secured 48% of the German bank's

shares.

His plan entails shrinking the Frankfurt-based lender's cost

base by €1.3 billion, a fifth of the total, while keeping it

separate from UniCredit's German unit until 2029 to

2030.

The hostile bid has already alienated staff and management,

German regulators have said, while European Central Bank

supervisors have warned integration will be challenging and

prolonged.

SHRINKING THE 'BLOATED CENTRE'

The experience of UniCredit offers clues to what lies ahead.

In reducing the workforce by a fifth since becoming CEO in 2021,

Orcel, a former UBS investment banker, slashed the size of

UniCredit's central corporate teams, which he has described as

"the bloated centre", including by shifting hundreds of

employees into branches to boost the sales effort.

A process the bank calls "de-layering" has seen UniCredit

cut the number of management tiers between the top ranks and

client-facing roles from nine to four.

Helped by higher interest rates and strict cost controls,

UniCredit has showered shareholders with cash from record

profits, driving a 10-fold increase in its shares since Orcel's

arrival in 2021, roughly three times the European sector's

rise.

Yet executives say the hard-nosed discipline has created

strain internally.

UniCredit said in July it had cut the costs of "non-business

functions" except the digital division five times more than

overall costs. Several sources said revenue-generating roles

were valued more highly than support functions.

Banking supervisors monitor whether control functions including

compliance and risk retain adequate staffing as banks pursue

cost reductions.

UniCredit did not respond to a request for comment.

Orcel will need a different skillset than the financial

wizardry that helped him gain control of the German bank,

Chicago Booth professor Kilian Huber said.

"The challenges he now faces are ... about managing culture

and transition processes over many years," Huber said,

predicting a "bit of a culture shock" at Commerzbank.

The takeover looks all but certain. The ECB has found no grounds

to block it under a preliminary assessment, but highlighted a

"challenging and long-lasting" integration process, made harder

by cultural differences and tensions created by the hostile bid,

Reuters reported this week.

'DELAYERING' DELIVERED

At UniCredit, Orcel inherited a bank already emerging from a

five-year restructuring under Jean-Pierre Mustier that lowered

annual operating costs to 52% of income, similar to

Commerzbank's current 50%.

Orcel pushed the ratio down a further 18 percentage points,

including by taking another €470 million off the annualised cost

base, even as revenues soared.

He has merged units within UniCredit's organisational chart

into bigger divisions, cutting overall staff numbers within

divisions and the senior people overseeing their work, one

current and one former employee told Reuters.

UniCredit said in July the number of organisational units

had fallen to about 6,400 structures from around 11,500 at the

end of 2020.

One mid-level executive described the cost discipline as so

strict it seemed better suited to a bank in distress than one

handing out record payouts to shareholders.

Dozens of long-serving senior executives have left, with a high

level of turnover at the top.

CONTRASTING CORPORATE CULTURE

UniCredit's 34% cost-to-income ratio places it alongside

Italian rival Intesa Sanpaolo's 36% - both far below

the 55% average for ECB-supervised banks.

But executives contrast the corporate culture and management

style at UniCredit with Intesa.

The latter is known for giving staff job security while keeping

a lid on pay. Orcel, instead, brought with him the mindset of

large U.S. investment banks where top performers are richly

rewarded and highly paid weaker performers are shown the door,

one serving UniCredit executive said.

Orcel has pledged to lower Commerzbank's costs to 37% of income

by 2030, targeting in particular central functions, non-core

costs such as consulting and the bank's international network.

Chicago Booth's Huber said Commerzbank's business model, built

around long-term client relationships, was more costly than

UniCredit's, which has standardised its banking products to

deliver them at scale.

"They must pay attention to that. That's a big challenge,"

he said.

(Editing by Tommy Reggiori Wilkes and Elaine Hardcastle)