UniCredit’s Orcel downplays talk of BPM deal as profits hit a record

UniCredit chief executive Andrea Orcel has downplayed rumours about a potential tie-up with local rival Banco Popolare di Milano, saying that pursuing any deals at current prices does not make sense.

Rising profits at UniCredit, which reported record results on Wednesday, has triggered speculation among analysts that the bank may set its sights on an acquisition, with BPM seen as the chief target.

While Orcel acknowledged on Wednesday that there were “a number of opportunities across Europe”, he cautioned that “prices of certain targets is fuelled by speculation and at those prices no deal makes sense”.

The bank is better off, he said, returning money to shareholders. Orcel’s tempering of expectations came as UniCredit raised its full-year profit forecast to more than €6.5bn after its first-quarter earnings hit €2.1bn, surpassing analyst estimates.

As a result, the Milan-based lender increased the amount it intended to return to shareholders this year to at least €5.75bn, up from the €5.25bn it paid out last year. Shares in the bank were up 7 per cent in early afternoon trading.

Shareholder payouts are a pillar of Orcel’s three-year strategic plan that has won support from investors. UniCredit is increasing its payout despite the turmoil that has swept the banking sector this year. Orcel said on Wednesday that management “remains vigilant in a difficult macro scenario”.

Fabrizio Palenzona, the new head of local investor Fondazione CRT and the former vice-chair of UniCredit, told Italian media last month that “a tie-up with BPM still makes strategic sense for the bank”.

Benjie Creelan-Sandford, analyst at Jefferies, said a takeover of BPM, which was derailed 12 months ago, would be a positive for UniCredit.

“Crucially, a deal would not derail [the bank’s] buyback capacity in the near-term given UCG’s strong starting position,” he noted.

Despite Orcel’s comments, analysts and investors expect UniCredit to examine potential deals after the failed tie-up with Banca Monte dei Paschi di Siena in 2021 and aborted takeovers of Russia’s Otkritie Bank and BPM last year. Orcel abandoned the pursuit of BPM after leaks about talks drove up the target’s price.

Like many rivals, UniCredit has been a beneficiary as the European Central Bank has lifted interest rates in a bid to tame inflation. Its first-quarter revenue climbed 57 per cent to €5.8bn from a year earlier, helped by rising rates. The bank forecast that net interest income will be more than €12.6bn this year.

Orcel said the portion of higher interest rates passed on to depositors rose to 22 per cent over the quarter, up two percentage points from December. It is now projected to be 30 per cent in 2023, but down from the previous 35 per cent to 40 per cent estimate, he said.