Sept 11 (Askume) – UniCredit has acquired a 9% stake in Commerzbank, raising prospects of a merger that has long been seen as a natural choice for the Italian bank.It acquired Bavarian counterpart HypoVereinsbank to enter the German market.
UniCredit attempted to attack Commerce Bank in 2001 but was repelled before the September 11 attacks.
The Milan-based bank developed a potential proposal in 2019 but faced political resistance. Efforts in 2022, led by current CEO Andrea Orcel, have gone nowhere due to the conflict in Ukraine.
Germany contributes around 20% to UniCredit Bank’s net profit.
Here’s what analysts say about the latest move:
UBS
If the full bid is placed, Germany’s weighting in UniCredit will increase from 20%-25% to around 40%.
UniCredit could provide cash financing for at least some of the potential deal, but not more than the 13% core capital limit set by the bank.
“We expect there will be some review of (i) the rationale behind the stake increase relative to the large initial investment, and (ii) the risks of deploying additional capital in Germany during this difficult period… but we remain cautious about the initial outlook for the deal being positive as it opens the door for UniCredit to access additional capital in regions where it already has a presence, and on terms that look financially attractive at first glance.”
Bank of America
The agreement will allow UniCredit to double its market share among German SMEs, cut costs and re-enter the Polish market.
“While in principle we believe such a development would be beneficial to all parties involved, the terms, scale and nature of delivery would pose some risks to execution and may present political/financial barriers.”
Other
Simulations conducted this summer suggested the deal would boost earnings per share (EPS) by more than 8%, assuming a 20% premium in 2027. Earnings per share have risen sharply since the fall in Commerzbank’s share price.
However, “we would like to know why UniCredit has not completed the full acquisition at this stage and what the timeline might be, as this could reduce the financial benefit”.
Citigroup said the German market is less profitable than Italy.
I understand it, yes
Assuming that UniCredit pays a 20-25% premium, comprising half cash and half shares, the merger would help the commercial bank cut costs by 10%, resulting in earnings per share growth of over 15%.
The combined entity will have a return on tangible equity (RoTE) of over 16.5%, while Commercial Bank’s current RoTE is around 8% and UniCredit’s current RoTE is over 17%.
Medio Bank Securities
With a 20% premium, Commercial Bank is “UniCredit’s most profitable alternative”, which would result in a 25% increase in earnings per share, a 3.1 percentage point increase in core capital, and a 1.7 percentage point increase in ROTE.
