UniCredit raises outlook with help from Commerzbank stake as it drops BPM bid

By Valentina Za

MILAN (Reuters) -UniCredit on Wednesday reported higher than expected quarterly income and raised its outlook for 2025 and beyond, a day after a clash with the government prompted Italy's second biggest bank to ditch its takeover bid for rival Banco BPM.

UniCredit late on Tuesday said it was withdrawing the offer, blaming government intervention in the process, which it said deprived Banco BPM shareholders, as well as Italy's economy, of a good opportunity.

"We've drawn a line on this transaction," CEO Andrea Orcel told CNBC television. "At some point you need to cut your losses, eliminate your drag and focus on what you control."

After sinking a deal with Italy's government to buy Monte dei Paschi (MPS) in 2021, Orcel derailed Rome's plans to combine MPS with Banco BPM, with the administration eventually imposing conditions on UniCredit's proposed takeover.

Despite scoring a partial court victory this month, and with European Union support expected, UniCredit ditched the BPM bid, a decision which JPM analysts said was "disappointing strategically".

A source with direct knowledge of the matter told Reuters that Banco BPM's main investor Credit Agricole also posed an obstacle, having upped its stake close to 20% with Italy's blessing in December and now seeking regulatory clearance to go up to 29.9%.

UniCredit's tussle with Rome and opposition in Germany over its Commerzbank investment highlight a wider European trend of government involvement in banking consolidation.

Spain's BBVA has encountered similar government resistance to its bid for Sabadell.

NO OPPORTUNITIES

Orcel, a veteran dealmaker, told analysts he saw no good M&A opportunities at present and UniCredit would settle for consolidating its stakes in Commerzbank and Greece's Alpha Bank in its accounts.

That is expected to lift UniCredit's 2027 income above 11 billion euros ($13 billion), up from a previous 10 billion forecast.

Orcel said UniCredit respected Germany's refusal to table discussions over its 29% stake in Commerzbank, and ruled out any further move on Alpha, in which it owns nearly 20%, without the Greek bank's consent.

JPMorgan analysts also noted Commerzbank's high share price hindered a takeover because UniCredit would not be able to offer a premium.

UniCredit raised its 2025 net profit goal to around 10.5 billion euros, from previous guidance of more than 9.3 billion euros, helped by a smaller than anticipated decline in income from the gap in deposit and lending rates and further cost cuts.

Overall revenue is still set to decline this year to 23.5 billion euros from 24.8 billion in 2024.

Net profit in the three months through June totalled 2.9 billion euros excluding one-off items, and 3.3 billion when including those. That is above a 2.5 billion euro forecast for the unadjusted figure in a company-gathered analyst consensus, and up from 2.7 billion euros a year ago.

UniCredit said it would pay shareholders at least 30 billion euros in 2025-2027, at least half of which in cash dividends and the rest through share buybacks, depending on potential acquisitions.

The bank took a 335 million euro hit in the quarter as it unwound hedging of its Commerzbank stake. Other one-off items included a positive accounting impact from the equity consolidation of its initial 9.9% Commerzbank holding and the revaluation of stakes in life insurance ventures in which UniCredit has bought out its partners.

($1 = 0.8527 euros)

(Reporting by Valentina Za, editing by Alvise Armellini and Tomasz Janowski, Kirsten Donovan)