UniCredit flags possible profit upgrade as it takes a breather on M&A

By Valentina Za

MILAN (Reuters) -Italy's UniCredit is aiming to improve its profit outlook when it reports 2025 results in February, counting on earnings from stakes built in rival lenders and stronger business momentum in the absence of M&A distractions.

Under CEO Andrea Orcel, a veteran dealmaker, the Italian bank has pursued a complex M&A strategy that led to sizeable investments in peers. Yet, despite a wave of consolidation in Italy’s banking sector, UniCredit has not sealed a major deal.

UniCredit will add 1 billion euros ($1.17 billion) to net revenues and profit by 2027 from its near 30% stake in Commerzbank and a 26% stake in Greece's Alpha Bank, which have cost UniCredit 6.5 billion euros ($7.6 billion).

STAKES EXPECTED TO BOOST PROFITS

Orcel said UniCredit would likely raise its Alpha stake to around 30%, but ruled out further steps unless backed by Alpha and Greek authorities, who have welcomed the investment, unlike Germany.

At home, UniCredit's M&A ambitions have also met resistance. The Italian government opposed its bid for Banco BPM, a deal that has since collapsed.

Asked whether domestic M&A was still on the table, Orcel said it was "possible but not probable."

DOMESTIC DEALS FACE GOVERNMENT RESISTANCE

He added that UniCredit had reduced a recently acquired stake in top Italian insurer Generali to below 5% in net terms, and used hedging to cut net exposure to under 2%.

Orcel also spoke of a 'put option' tied to Commerzbank's share price, which would generate gains for UniCredit if the stock dropped sharply..

"Those hedges cost money and they are netted from the profitability of a stake," he said, adding that the return on those investments was still very high at 20% and better than what UniCredit would gain from purchasing its own stock.

Orcel has used large share buyback to reward investors when UniCredit shares traded at a deep discount. An eight-fold increase in the stock price since his arrival in 2021 means that returns from an acquisition are now a better option that buybacks.

UniCredit shares, which have gained 61% this year against the European banking index's 43% rise, fell 1.6% by 1112 GMT.

UniCredit confirmed its profit outlook for the year after net income in July-September topped expectations thanks to trading gains, which more than doubled quarter-on-quarter, and said it could raise its profit goals.

"The revenue beat is mainly driven by the stake income and trading income," Citi analysts said. "We'd therefore argue the quality of the beat is not quite as good as at first glance."

UniCredit targets 10.5 billion euros in net income this year, rising well above 11 billion in 2027.

"Because of the acceleration of our commercial results that we see this year ... we're more optimistic," Orcel said, adding that fourth quarter earnings would be key.

"If the trends are confirmed, we will be looking to upgrade our expectation for profitability [for 2026 and 2027] ... and we will add 2028."

($1 = 0.8575 euros)

(Reporting by Valentina Za; Editing by Giulia Segreti, Kate Mayberry, Barbara Lewis and Louise Heavens)