By Valentina Za and Tom Sims
MILAN/FRANKFURT (Reuters) – Italy’s UniCredit beat third-quarter expectations on Wednesday and raised its profit outlook as its CEO discussed its potential deal with Commerzbank (ETR:), saying its own growth plan aimed at offsetting a takeover to keep it out worked.
The banks’ financial results are the first since Italy’s second bank announced in September that it had acquired a significant stake in Germany’s Commerzbank and began pushing for a possible takeover.
Commerzbank has since tightened its defenses and raised some of its own financial targets on Wednesday in its bid to avoid one of the biggest European banking deals since the global financial crisis.
CEO Bettina Orlopp said on Wednesday that UniCredit had requested a new round of talks, while UniCredit CEO Andrea Orcel told analysts that a decision on a full takeover would take time but should come within a year.
In the third quarter results, both banks tried to underline their financial strength.
UniCredit, which is now awaiting regulatory approval to become the lead investor in Commerzbank, said it aims to replicate in 2025 and 2026 a recently raised profit target of more than 9 billion euros ($10 billion) for 2024, after earnings expectations for the third quarter were exceeded.
Starting next year, it will start paying out half of its net income to investors in cash, an increase of 40%.
UniCredit’s decision for Commerzbank has sparked widespread opposition in Germany and marks a key test for Europe’s readiness to weather long-awaited cross-border banking consolidation.
The Italian bank said on Wednesday that its German operations are a “mirror image” of the better performance of Commerzbank and UniCredit Germany in recent years.
Addressing concerns that a merged bank would take decision-making away from Germany, Orcel said the bank would be run by a “fully empowered German legal entity.”
“UniCredit invested in Commerzbank because we believe it can be a much better and stronger bank, especially in and for Germany,” Orcel told analysts.
He also refused to rule out an unsolicited takeover bid, saying “hostility” was “a matter of … definition”.
UniCredit does not have to wait for the European Central Bank to approve its request to increase its stake in Commerzbank to 21% before launching a full takeover bid, as that approval process would be separate, Orcel said.
Shares in UniCredit fell 1.3% after initially rising, with underperforming gains in banking stocks fueled by Donald Trump winning the US presidential election. Commerzbank shares fell 2.3%.
Analysts at KBW described UniCredit’s results as a “strong gain” that continued to justify their “outperform” rating, despite the shares beating the STOXX Europe 600 index by 5% last month.
Commerzbank reported a 6.2% decline in net profit to 642 million euros, better than analysts expected on average, but was dragged down by a decline in interest income and an increase in risk provisions.
Nevertheless, the bank raised its outlook for full-year net interest income from 8.1 billion euros to 8.2 billion euros and increased its fee and commission income to growth of more than 5%, compared to a previous forecast of 4 %.
“This shows that our growth initiatives are increasingly paying off, thanks to the very consistent implementation of our strategy,” said Orlopp.
Orcel says UniCredit is willing to walk away from a potential deal with Commerzbank and would only pursue it if it would not harm the Milan-based bank’s shareholders.
($1 = 0.9299 euros)
