UniCredit and Commerzbank prepare to raise targets | Wilnesh News

It’s been two months since UniCredit first moved to woo German banks CommerzbankOne of Europe’s biggest banking mergers remains pending, with lenders showing off their financial muscle.

The two banks announced third-quarter results on Wednesday, with UniCredit’s net profit rising 8% year-on-year to 2.5 billion euros ($2.25 billion), while Reuters reported a net profit of 2.27 billion euros. It raised its full-year net profit guidance to more than 9 billion euros from its previous forecast of 8.5 billion euros.

Commerzbank revealed that third-quarter net profit fell 6.2% to 642 million euros due to a sharp drop in net interest income and an increase in risk reserves. Nonetheless, the bank said it had raised its forecast for net interest and net commission income in 2024 and confirmed its forecast for full-year net profit of 2.4 billion euros, compared with 2.2 billion euros in 2023.

Commerzbank Chief Executive Bettina Orlopp said in an interview with CNBC’s Annette Weisbach that the bank had a “very good quarter” while acknowledging that Europe’s larger Low interest rates have a clear impact on business.

She stressed that Commerzbank is increasing the value of its shares through a combination of capital returns and higher profitability and the bank’s ease of achieving its goals.

“We have a very good strategy and it’s working,” she said. The market is watching whether the bank will adopt a defensive strategy to fend off takeover interest.

Commerzbank has so far shunned UniCredit’s advances. The German bank named a new chief executive as the Italian bank used derivatives to acquire a potential 21% stake in Commerzbank. Clarified financial goals. on Monday, Deutsche Bank said The company has received regulatory approval to buy back 600 million euros ($653 million) of stock, with the buyback program set to start after Wednesday’s earnings report and be completed by mid-February.

However Orlop told CNBC that Commerzbank is not inherently opposed to the merger:

“We have nothing to object to because nothing is on the table. That’s very important. We also always say we will be very open to discussions and if they have something on the table we will review it carefully. Our own independent strategy to see where we can create more value for the benefit of our stakeholders,” she said.

The German government has yet to give its blessing to the potential alliance, with Chancellor Olaf Scholz slamming “unfriendly attacks, hostile takeovers are not a good thing for banks”. Comments from late September Reuters reports.

The Berlin government, Commerzbank’s largest shareholder, retained a 12% stake after rescuing the bank during the 2008 financial crisis and divesting an initial 4.5% stake in early September.

But potential divisions at home could prevent Scholz’s governing coalition from closely monitoring the deal, with members holding scheduled talks later on Wednesday.

“Let’s put it this way: If we hadn’t been invited to buy these shares, we wouldn’t be here. It all started in a way that we thought was constructive,” UniCredit CEO Andrea Orser told CNBC’s Charlotte Reid on Wednesday. CNBC has contacted the German Finance Ministry for comment.

Interest in a major cross-border bank merger in Europe has been brewing since the controversial takeover and subsequent evisceration of Dutch bank ABN Amro by a consortium led by Royal Bank of Scotland in 2007, leading to a financial crisis between the two banks. Closure during crisis. UniCredit chief executive Andrea Orcel, then a senior investment banker at Merrill Lynch, advised ABN AMRO on the deal, after the Italian bank gave up its bid for Montebanco, the world’s oldest bank After his domestic transactions, he once again turned his attention to international venture capital.

UniCredit already operates in Germany through its HypoVereinsbank branch – which Orser said he considered “a mirror image” of Commerzbank.

Last year, UniCredit bought nearly 9% of Bank Alpha from the state-run Hellenic Financial Stability Fund. On Tuesday, the Italian bank announced the completion of Acquired 90.1% majority stake Acquired the Romanian operations of Alpha Bank and plans to complete the absorption of this entity in the second half of 2025.

In the first three quarters of this year, UniCredit’s common equity tier 1 ratio (CET 1), a measure of the bank’s strength and resilience, exceeded 16%, and it appears to be well-positioned to handle the pressure from acquisitions. Last week, Fitch upgraded its ratings UniCredit’s long-term debt ratings Go to BBB+ — right up there Italian sovereign bond BBB rating — cited the lender’s “multi-year restructuring, balance sheet de-risking and significantly improved loss-absorbing capacity.”

The rating company noted that UniCredit’s acquisition of a 21% stake in Commerzbank did not have a “direct impact” on its rating.

Orcel ignored the risks associated with its increased stake in the German bank and a potential acquisition:

“Our CET1 is much higher than Commerzbank’s, but we need to think about liquidity, we need to think about everything else, like the rating agencies. At the end of the day, I don’t think there is anything, if anything, that we would have known before moving,” Orcel noted. , and highlighted UniCredit’s track record in Germany:

“UniCredit went through a really difficult time in the (financial) crisis,” he said. “We never squeezed Germany, we never repatriated capital or liquidity from Germany, we never asked for government support. This is what Commerzbank has to do.”

But the deal isn’t done yet, and Oser said UniCredit would only move forward “if it gives us the returns that investors expect, and actually, they need to meaningfully improve those returns.”