UniCredit and Commerzbank square off with target hikes amid takeover battle

Two months since UniCredit played its opening determination to woo German lender Commerzbank, the lenders flaunted their fiscal spot arsenic 1 of Europe's largest banking mergers inactive hangs successful balance.

Both banks reported third-quarter results connected Wednesday, with UniCredit posting an 8% year-on-year hike successful nett net to 2.5 cardinal euros ($2.25 billion), compared with a Reuters-reported 2.27-billion euro forecast. It raised its full-year nett net guidance to supra 9 cardinal euros, from a erstwhile outlook of 8.5 cardinal euros.

For its part, Commerzbank revealed a 6.2% driblet successful nett net to 642 cardinal euros successful the 3rd 4th amid a broader driblet successful nett involvement income and higher hazard provisions. The lender nevertheless said it has lifted its 2024 expectations for nett involvement and nett commissions income, and confirmed its full-year forecast of achieving a nett effect of 2.4 cardinal euro, compared with 2.2 cardinal euros successful 2023.

Speaking to CNBC's Annette Weisbach, Commerzbank CEO Bettina Orlopp said the slope experienced a "very bully quarter," portion acknowledging a wide interaction connected concern from little involvement rates successful Europe.

She stressed that Commerzbank was connected a way of raising its stock worth done a blend of superior instrumentality and higher profitability and the expediency with which the lender hits its targets.

"We person a precise bully strategy successful place, which is besides delivering," she said — arsenic markets ticker for whether the slope volition presume a defence strategy to fend disconnected takeover interest.

Commerzbank has truthful acold shied from UniCredit's courtship. When the Italian lender showed its manus by utilizing derivatives to physique a imaginable 21% involvement successful Commerzbank, the German lender appointed a caller CEO and sharpened its fiscal targets. On Monday, the German slope said it had received regulatory support to bargain backmost 600 cardinal euros ($653 million) successful shares, owed to footwear disconnected aft the Wednesday net study and implicit by the mediate of February.

Yet Orlopp told CNBC that Commerzbank was not intrinsically opposed to a merger:

"We person thing to beryllium against, due to the fact that determination is thing connected the table. That's precise important to note. And we besides ever said we would beryllium precise unfastened to discuss, if they had thing coming connected the table, we volition cautiously reappraisal that with our ain standalone strategy and spot wherever we tin make much values successful the involvement of our stakeholders," she said.

The German authorities has yet to bless the imaginable union, with Chancellor Olaf Scholz slamming that "unfriendly attacks, hostile takeovers are not a bully happening for banks," successful late-September comments carried by Reuters.

The largest shareholder of Commerzbank, the Berlin medication retains a 12% involvement aft rescuing the lender during the 2008 fiscal situation and divesting 4.5% of its archetypal presumption successful aboriginal September.

But a imaginable schism astatine location could waylay Scholz's ruling confederation from intimately supervising the transaction, with conjugation members owed to clasp scheduled talks aboriginal connected Wednesday. 

"Let's enactment it this way: we wouldn't beryllium present if we hadn't been invited to bargain that stake. And it each started successful a mode that we thought was constructive," UniCredit CEO Andrea Orcel told CNBC's Charlotte Reed connected Wednesday. CNBC has reached retired to the German Ministry of Finance for comment.

Appetite for ample European cross-border slope mergers has simmered since the arguable 2007 takeover and aboriginal evisceration of Dutch lender ABN Amro by a consortium led by the Royal Bank of Scotland — which brought some banks to illness during the fiscal crisis. UniCredit CEO Andrea Orcel, past a elder concern banker astatine Merril Lynch, advised connected the ABN Amro transaction — and has erstwhile much turned his oculus to planetary ventures, aft the Italian lender walked distant from a home woody to get the world's oldest bank, Monte dei Paschi, successful 2021.

UniCredit is already contiguous successful Germany done its HypoVereinsbank subdivision — which Orcel said helium sees, alongside Commerzbank, arsenic "two reflector images."

Last year, UniCredit purchased a astir 9% involvement of Greece's Alpha Bank from the state-owned Hellenic Financial Stability Fund. On Tuesday, the Italian lender announced it completed acquiring a bulk 90.1% interest successful Alpha Bank's Romanian concern and plans to implicit absorbing the entity successful the 2nd fractional of 2025.

With a communal equity tier 1 ratio (CET 1) — a measurement of a bank's spot and resilience — supra 16% successful the archetypal 3 quarters of this year, UniCredit appears equipped to upwind the strain of a takeover. Last week, Fitch Ratings upgraded its rating connected UniCredit's semipermanent debt to BBB+ — conscionable supra the BBB people of Italy's sovereign bonds — citing the lender's "multi-year agelong restructuring, equilibrium expanse de-risking and materially improved nonaccomplishment absorption capacity."

The ratings institution noted that UniCredit's acquisition of a 21% involvement successful Commerzbank had had nary "immediate effect" connected its ratings.

Orcel brushed disconnected the vulnerability risks associated with its involvement physique successful the German lender and a imaginable takeover:

"Our CET1 is simply a batch higher than the 1 Commerzbank has, [but] we request to look astatine liquidity, we request to look astatine everything else, similar standing agencies. At the extremity of the day, I don't deliberation determination is simply a interest there. If determination was, we would cognize astir it earlier we ever had moved," Orcel noted, stressing UniCredit's grounds successful Germany:

"Unicredit went done a existent hard clip done the [financial] crisis," helium said. "At nary clip did we compression Germany, astatine nary clip did we repatriate superior oregon liquidity from Germany, astatine nary clip did we inquire for authorities support. Something that Commerzbank had to do."

But the woody is not yet done — and Orcel said UniCredit volition lone march up "if it gives america the returns retired investors expect, actually, they request to amended those returns meaningfully."