Andrea Ursel, CEO of Unicredit, in London, UK, on Thursday, November 23, 2023.
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Analysts say UniCredit's Andrea Ursel is split between two acquisitions and still has room to improve his bid for Italy's Banco BBM, while political turmoil hampers a deal with the German bank. Commerzbank.
Orcel, who was a key architect of the controversial 2007 takeover and then break-up of Dutch bank ABN Amro, had reconsidered his ambitions for cross-border consolidation with a September announcement of a surprise stake build-up in Commerzbank. Until recently, the latter was the subject of speculation as a potential merger partner for Germany's largest bank, Deutsche Bank.
Amid resistance from the German government — and turmoil in Chancellor Olaf Scholz's ruling coalition — UniCredit last month also turned its eyes to Banco BBM, with a 10 billion euro ($10.5 billion) offer that the Italian counterpart said was delivered on “extraordinary terms.” It does not reflect its profitability and growth potential.
Along the way, Ursel drew disapproval from the Italian administration, with Economy Minister Giancarlo Giorgetti warning that “the safest way to lose the war is to enter on two fronts,” according to the Italian news agency ANSA.
Analysts say the spurned UniCredit Bank – whose paid-up equity capital ratio, which reflects a bank's financial strength and resilience, was more than 16% in the first three quarters of this year – can still improve its domestic offering.
“There is room to increase (Banco BPM) exposure,” Johan Schulz, chief equity analyst at Morningstar, told CNBC.
But he cautioned that there was “limited scope” to do so. “Think (of an increase) of more than 10%, it will likely dilute shareholders’ dividends.”
UniCredit's initial proposal was for an all-stock deal that would merge two of Italy's largest lenders, but it offered just €6,657 per share.
Both Schultz and Filippo Allotti, senior credit analyst at Federated Hermes, said UniCredit could improve the offering by handling a cash component.
“Remember, this is Orcel's second attempt to buy (Banco) BPM… I don't think there will be a third attempt. I think they will either close (the deal) now, or maybe he will leave. So I think the cash component is “It may be on the table.” Orcel last month described Banco BPM as a “historic target” – fanning the flames of media reports that UniCredit had previously sought to create a local consortium in 2022.
The Italian scene was ripe for M&A activity early last month, after Banco BPM acquired a 5% stake in Monte dei Paschi – the world's oldest bank and another previous takeover target of UniCredit, until talks collapsed in 2021 – when Rome sought to cut… Her share. In the bankrupt bank.
Schultz critically noted that UniCredit's bid “puts (Banco) BPM in a difficult position,” triggering a negative rule that bars it from any action that might block the bid without shareholder approval — and could stifle Banco BPM's early November takeover ambitions. Control of fund manager Anima Holding, which also owns a 4% stake in Monte dei Paschi.
Attack and defense
Attacking the consolidation may be UniCredit's best defense in an environment of easing interest rates.
“A multi-year restructuring process, de-risking the balance sheet and materially improving loss absorption capacity” pushed UniCredit to a BBB+ long-term debt rating from Fitch Ratings in October, higher than Italy's sovereign bond rating.
But the lender must now contend with an environment of easing monetary policy, where it is “more vulnerable to changes in interest rates due to its relatively limited presence in asset management and bancassurance,” Alessandro Buratti, an analyst at Scope Ratings, wrote last month.
Both acquisition prospects hedge some of that exposure. JPMorgan analysts noted in a November note that a Commerzbank consortium in Germany, where UniCredit operates through its HypoVereinsbank division, could create synergies in its capital markets, advisors, payments and trade finance activities. Such a union would produce a “limited” advantage in financing, as the two banks' spreads are already trading closely, they added.
Closer to home, Banco BPM offers a complementary strength in asset management, Schultz points out. Absorbing a local counterpart is also one of the only options left for the Italian lender to take a leadership role on the local stage, Allotti said.
“There's not really much they can buy in Italy to bridge the gap with (Italy's largest bank) Intesa. “Maybe Banco BPM…that's why they looked at it in the past,” Alloatti said. “Banco BPM is the only bank they can buy to get somewhat closer to Intesa.” Intesa Sanpaolo is currently the largest bank in Italy by total assets.
The approach to Banco BPM also has the “added value” of signaling to German shareholders that UniCredit has other M&A options available to it, KBW analyst Hugo Cruz told CNBC in email comments. However, he stressed that the local takeover bid is likely “a fundamental reaction to the acceleration of the consolidation process in the Italian banking system”, which resulted from Banco BPM's acquisition of its stake in Monte dei Paschi.
Orcel may need to decide between going offshore or staying home, with analysts pointing to high integration costs and a significant cost to management time if UniCredit tries to accommodate the two takeover targets.
Ultimately, the Italian lender — which posted its 15th straight quarter of growth this fall and has seen a roughly 61% rise in its stock price year to date — could choose to stand alone, said KBW's Cruz.
“I don't think Mr. Orcel should do a bank takeover. He has already mentioned that any takeover would need to add value compared to UniCredit's standalone strategy, and if the takeover doesn't happen, the bank will continue with the same strategy, which the Italian bank has already refrained from,” he added. About submitting bids in the past “because it was still under restructuring and did not have the ability to do so,” indicating that the Italian bank had refrained from submitting bids in the past “because it was still under restructuring and did not have the ability to do so.” Acquisition currency.”
“Hopefully they will have the discipline to walk away from both deals” if they don't deliver a return for shareholders, Morningstar's Schultz added.
