UniCredit touts Commerzbank merger merits as both banks hike targets

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By Tom Sims and Valentina Za

FRANKFURT/MILAN (Reuters) -Italy’s UniCredit beat third-quarter forecasts on Wednesday and hiked its profit outlook as its CEO talked up his possible deal with Commerzbank, while the German bank said its own growth plan meant to fend off a takeover was working.

The lenders’ financial results are the first since Italy’s No. 2 bank disclosed in September it had snapped up a significant stake in Commerzbank and began pressing for a possible tie-up.

Commerzbank has been honing its defence since and on Wednesday raised some of its own financial targets as it seeks to stay independent and avoid what would be one of the largest European banking deals since the global financial crisis.

Both banks sought to underline their financial strength in third-quarter financial reports.

UniCredit, which is now awaiting supervisory approval to become the main investor in Commerzbank, raised its 2024 profit outlook to more than 9 billion euros ($9.7 billion) and said it would replicate that in 2025 and 2026 and start paying out half its net income to investors in cash from next year, up from 40%.

The bank’s 2.51 billion euro net profit for the July-September period beat an average forecast of 2.27 billion euros.

UniCredit’s move for Commerzbank has sparked widespread opposition in Germany and marks a major test for Europe’s willingness to see through long-awaited cross-border banking consolidation.

The Italian bank said on Wednesday its German business was a “mirror image” of Commerzbank and the better performance of UniCredit Germany in recent years showed what could be achieved if it were allowed to combine with Commerzbank.

“I think that beyond what is happening today, people will look at the facts and the facts are actually quite positive for Germany, the European Union and I’d say that they are quite positive for Commerzbank too,” Orcel told CNBC.

Shares in UniCredit rose 0.2%, in line with gains across many European banking stocks fuelled by Donald Trump declaring victory in the U.S. presidential election. Commerzbank shares fell 3.3%. 

Analysts at KBW described UniCredit’s results as a “strong beat” and said that despite its shares leading the STOXX Europe 600 Banks index by 5% over one month the continued to justify their “outperform” rating.

Commerzbank reported a net profit fall of 6.2% to 642 million euros, better than analysts on average had expected but dragged down by a fall in interest income and a rise in risk provisions.

Nevertheless, the bank raised its outlook for net interest income and commission income for the full year.

“This shows that our growth initiatives are increasingly paying off, thanks to the very consistent implementation of our strategy,” Chief Executive Bettina Orlopp said.

The bank notched up its 2024 forecast for net interest income to 8.2 billion euros from 8.1 billion, with commission income now seen rising more than 5%, better than an earlier forecast of 4%.

UniCredit has said it is willing to walk away from a possible deal with Commerzbank and would only pursue one if it did not hurt shareholders in the Milan-based bank.

($1 = 0.9299 euros)

(Reporting by Tom Sims and Oliver Hirt in Frankfurt and Valentina Za in Milan; Writing by Tommy Reggiori Wilkes; Editing by Rachel More, Clarence Fernandez and Tomasz Janowski)