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Italian lender UniCredit raised its full-year guidance after reporting a rise in third-quarter profits while earnings slipped at German rival Commerzbank, as earnings diverged for the two lenders at the centre of Europe’s biggest potential tie-up in more than a decade.
UniCredit said on Wednesday that its net profit for the three months to the end of September was up 8 per cent year on year to €2.51bn, well above the €2.27bn forecast, and it now expects its full-year profit to surpass €9bn, up from the €8.5bn projected in May.
While confirming its distribution plans for 2024 of about €10bn, the Italian lender said it now planned a greater shareholder payout next year with its cash dividend to be increased to 50 per cent from the current 40 per cent.
Meanwhile, Commerzbank said its quarterly net profit was down 6.2 per cent year on year to €642mn, as its interest income fell and provisions for bad loans almost tripled. Analysts had expected a larger decline and the German lender confirmed its full year profit outlook of €2.4bn. The bank said that it will now start another share buyback of €600mn and is seeking approval from regulators to buy back another €400mn of its shares. Over the first nine months of the year, Commerzbank’s net profit was up 5.3 per cent to €1.9mn.
By contrast, UniCredit’s net profit over the same period was up 16 per cent to €7.7bn compared with the same period last year. Its return on equity was also up by 1.4 percentage points to 19.7 per cent.
Fees were up 8.5 per cent year on year, while costs were slightly down.
“We reported our 15th consecutive quarter of profitable growth and record financial results,” chief executive Andrea Orcel said in a statement.
“All our regions are contributing to our success while they reap the benefits of a larger group,” he added. UniCredit has recently taken a majority stake in Romania’s Alpha Bank, acquired fintechs Vodeno and Aion Bank and internalised its Italian bank-insurance arm.
UniCredit in September took a 9 per cent stake in Commerzbank and disclosed a derivatives position over another 11.5 per cent that it can acquire pending regulatory approval. The bank has also sought permission to raise this to 29.9 per cent in a move that would make the Milan-based lender the largest single shareholder in the Frankfurt-based bank and set in motion the largest potential M&A deal in the region since the financial crisis.
The German government still retains a stake in Commerzbank resulting from a bailout during the financial crisis. It announced plans to sell the stake down at the end of the summer, but was caught off-guard by UniCredit’s approach.
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.
Loan loss provisions almost tripled to €255mn in the quarter while operating costs rose 1.7 per cent. The return on tangible equity fell by 0.9 percentage points to 8.7 per cent, below its 2027 target of more than 11 per cent. Common equity tier one — a key benchmark of balance sheet strength — rose to 14.8 per cent, well above the regulatory minimum of 10.3 per cent.
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 famed M&A banker, became the head of the Milanese bank in early 2021, the market had been expecting a large deal. However, the chief executive has been clear he could only pursue one if it meets 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.