Commerzbank would boost UniCredit earnings, but not without risks

UniCredit's purchase of a 9% stake in Commerzbank has raised the prospect of a merger which has long been considered a natural option for the Italian lender, which entered the German market in 2005 by buying Bavarian peer HypoVereinsbank.

UniCredit in 2001 had attempted a move on Commerzbank, which it aborted just before the Sept. 11 attacks.

The Milan-based bank worked on a possible offer in 2019, but met political resistance. A push under current Chief Executive Andrea Orcel in 2022 led nowhere due to the Ukraine conflict.

Germany accounts for around 20% of UniCredit's net profit.

Here are some views from analysts on the latest move:

UBS

If a full bid took place, the weight of Germany for UniCredit would rise to around 40% from 20%-25%.

UniCredit could fund at least part of a potential deal with cash without its core capital breaching the 13% threshold the bank wants to respect.

"We'd expect some scrutiny about the rationale behind (i) the stake build up versus a larger initial investment, and (ii) the risks of deploying additional capital in Germany at this difficult juncture ... but our initial view on the deal is positive insofar it opens the door for UniCredit to use excess capital in a geography it already operates and under financially attractive terms at first sight."

BANK OF AMERICA

A deal would allow UniCredit to double its market share with German SMEs, cut costs and re-enter the Polish market.

"While in principle we believe such a development would potentially be a win-win for all parties involved, deal terms, the size and nature of the deal would come with some execution risk and possibly political/financial hurdles."

With a 20% premium, Commerzbank is "comfortably the most accretive option for UniCredit" with a 25% boost to earnings per share, a 3.1 percentage point hit to core capital and an increase of 1.7 percentage points to ROTE.

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