Andrea Orcel is running the risk of being mistaken for Jean Pierre Mustier again. The latest parallel between the boss of UniCredit and his predecessor is an enthusiasm for a merger with Commerzbank. His capital return plan also contained trace elements of Mustier, as did his resistance to a tie-up with the shambolic Monte dei Paschi.
The Italian bank and its German peer scrapped plans for talks after the war in Ukraine broke out. A deal still makes long-term sense. Orcel may just have the diplomatic chops to pull one off, given momentum for European integration amid Russian aggression.
For the moment, EU banking exemplifies the victory of nationalism over financial logic. The market remains fragmented in brand awareness, regulation and ownership. Consolidation is badly needed. National politicians are philosophically attuned to integration but pragmatically resistant to takeovers of “their” financial institutions.
The de-Balkanisation of European banking would lag a long way behind greater military and energy collaboration as an objective for EU leaders. UniCredit’s immediate priority is to resolve its exposure to Russia. Its shares have collapsed in parallel with those of rivals amid fears of a European recession.
Commerzbank should become a prospect for UniCredit again when the fog of war clears. Even with recent optimism on rate rises, consensus returns for 2024 of 6.3 per cent are near half the German bank’s estimated cost of equity.
German politicians recognise the need for consolidation. UniCredit gets some local camouflage from its ownership of HypoVereinsbank, Germany’s fifth-largest lender. A tie-up looks like the least worst option in terms of job losses from possible mergers. A dual listing for UniCommerz in Milan and Frankfurt would leave German investors with skin in the game.
Financial metrics have changed little since Mustier proposed a transaction in early 2019. Cost savings were estimated at 12 per cent of the combination but are likely to be lower today. A deal might have added 11 per cent to UniCredit’s earnings per share, Mediobanca’s Andrea Filtri wrote back then.
A transaction would have to be capital neutral to hew to Orcel’s strategy. The proportion of merged equity that would be controlled by UniCredit investors at current prices looks like another stumbling block. This has dropped back to the troubled levels of 2019. Orcel will want a better deal for his shareholders than Mustier might have secured. Nationalism waxes and wanes. Executive one-upmanship is eternal.
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