UniCredit said it converted part of its position in peer Commerzbank into stock, raising its equity stake in the German bank it hopes to engineer a merger with to 26%.

The Italian lender said Monday that it converted financial instruments it holds in the bank into physical shares, consolidating the equity stake into its accounts.

UniCredit has been circling Commerzbank since last September, when it first disclosed that it amassed an around 9.5% initial stake in the German group through share purchases and flagged interest in a potential tie-up. In the following months, it accumulated financial contracts tied to Commerzbank shares in the form of derivatives.

The Italian group will convert the remaining synthetic position--which it holds through instruments such as derivatives--in due course to take its position to around 29%, as previously announced, it added.

UniCredit also said that the impact on its common equity Tier 1 ratio--a measure of balance-sheet strength--from the 29% stake in Commerzbank will be higher due to the increased share price and adjustments in its hedging strategy. The hit is now expected to be around 145 basis points against 110 basis points previously.

"Whilst UniCredit does not intend to seek board representation at this time, we will continue to closely monitor Commerzbank's progress in sustainably strengthening its business and creating value for its shareholders, clients and people," the group said.