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The two lenders at the centre of Europe’s biggest potential banking deal in more than a decade reported diverging earnings on Wednesday, with Italian lender UniCredit lifting full-year guidance on higher profits while its target Commerzbank braced for an increase in bad loans.
UniCredit said on Wednesday that its net profit for the three months to the end of September was 8 per cent higher than a year ago at €2.51bn — well above the €2.27bn forecast — and it now expects full-year profit to surpass €9bn rather than the €8.5bn it projected in May. The Italian lender also said it planned to pay out more to shareholders next year.
Commerzbank, meanwhile, said quarterly net profit was 6.2 per cent lower than a year ago at €642mn, as its interest income fell and provisions for bad loans almost tripled. Analysts had expected a larger decline, however, and the German lender confirmed its full-year profit outlook of €2.4bn.
UniCredit set in motion the largest potential M&A deal in the region since the financial crisis in September, when it first disclosed a 9 per cent stake in Commerzbank, which it followed up with a derivatives trade that could take its stake to 21 per cent.
Chief executive Andrea Orcel told investors on a conference call on Wednesday that UniCredit would decide on a full Commerzbank takeover “within a year”, indicating a longer-than-expected timeline for the potential deal.
Speaking to Italy’s Class CNBC television, he said the potential tie-up faced “a long road ahead”.
Commerzbank’s management has so far dismissed UniCredit’s approach, claiming its standalone case was superior for investors, clients and employees. “Our growth initiatives are increasingly paying off, thanks to the very consistent implementation of our strategy,” chief executive Bettina Orlopp said on Wednesday.
UniCredit has long courted Commerzbank, but the potential tie-up has faced numerous obstacles, including political ones, over the past few years, including under Orcel’s predecessor Jean-Pierre Mustier.
Since Orcel, a prominent M&A banker, became head of the Milanese bank in early 2021, the market had been expecting a large deal. However, the chief executive had been clear he would only pursue one if it met certain conditions, including a 15 per cent return on investment.
UniCredit investors have enjoyed a 230 per cent share price increase since Orcel’s arrival. The bank has committed to returning €8.6bn, its entire 2023 profit pool, to investors in the form of buybacks and dividends.
