MILAN (Reuters) -UniCredit CEO Andrea Orcel said on Wednesday he currently saw little scope to advance his acquisition strategy, given that Commerzbank had become too pricey and Italy was effectively blocking a takeover of Banco BPM.

Veteran investment banker Orcel arrived at UniCredit in 2021 vowing to use M&A to speed up growth, provided deals meet strict criteria that would allow him to retain the returns his shareholders have enjoyed thanks to high interest rates and tight cost control.

Having driven a seven-fold increase in UniCredit's share price, Orcel last year moved on Commerzbank and smaller domestic peer Banco BPM, sparking angry reactions in both Berlin and Rome.

UniCredit has challenged in court the conditions Italy has set for the BPM bid and secured a one-month freezing of the offer from Italy's markets regulator as it pursues discussions with the government.

Rome has asked UniCredit to halt loans and deposits at its Russian business, except for payments needed to support Western companies operating there.

Orcel said it was not clear whether deposits of less than 1 billion euros linked to the 6 billion euros in payments UniCredit still processed every quarter - down from 25 billion previously - would represent a violation, raising the risk of huge fines.

"If it is not clear ... then the probability that we take that risk is zero, and therefore we will pull," he told Goldman Sachs' European Financials conference in Berlin, estimating at 20% or less the chances of the BPM acquisition going through.

David Benamou, chief investment officer at Axiom Alternative Investments which holds stakes in a number of Italian banks, said he saw Orcel's comment as "tactical: managing market and shareholder expectations, and pressuring the Italian government."

Orcel also played down the prospect of a full Commerzbank takeover saying the share price had risen excessively.

"No, at this level, we would not see value for our investors [in an offer for Commerzbank]," he told CNBC television. "We're very happy for the gain we've had on the 30% [stake] but we wouldn't see value for our investors," he said.

On Tuesday, Germany's finance minister said a letter that Chancellor Friedrich Merz had written to Commerzbank staff to express opposition to UniCredit was "an important signal" about the government's stance.

UniCredit has acquired 28% of Commerzbank and Orcel said it expected by the end of the month to complete the steps that allow it to convert into equity the two-thirds of the stake which UniCredit still owns as derivatives.

UniCredit would then decide whether to consolidate the stake and it would in that case want to "exercise the power" that comes with being the biggest shareholder. Orcel reiterated he had given himself until 2027 to take a final decision on the stake.